Inventory Estimation

• Retail method


  A method that is widely used by merchandising firms to value or estimate ending inventory, where a category of inventory sold at retail has a consistent mark-up. The cost-to-retail percentage is multiplied times ending inventory at retail.
• Retail method


  1. Determine ending inventory at retail by physical count of goods on hand, at their retail value

  2. Determine ending inventory at retail by subtracting sales from goods available for sale at retail
• Physical count


  The quantities determined via the physical count are presumed to be correct, and any differences between the physical count and amounts reflected in the accounting records should be matched with an adjustment to the accounting records
• Gross profit method


  An estimation technique used to estimate inventory on hand for purposes of preparing monthly or quarterly financial statements, or if a fire or other catastrophe destroyed the inventory. Uses a company's historical normal gross profit rate (i.e., gross profit as a percentage of sales) to estimate the amount of gross profit and cost of sales.