Retail Inventory Method
Response to the following problem:
Retail, Inc., sells normal brand name household products both from its own store and on consignment through The Mall Space Company
Required:
1. Explain whether Retail, Inc., should include in its inventory normal brand-name goods purchased from its suppliers but not yet received if the terms of purchase are FOB shipping point (manufacturer's plant).
2. Explain whether Retail, Inc., should include freight-in expenditures as an inventoriable cost.
3. Retail, Inc., purchased cooking utensils for sale in the ordinary course of business three times during the current year, each time at a higher price than the previous purchase. Explain the effect on ending inventory and cost of goods sold if Retail, Inc., used the weighted-average cost method instead of the FIFO method.
4. Explain how and why Retail, Inc., will treat net markdowns when it calculates the estimated cost of ending inventory using the conventional (lower of cost or market) retail inventory method.
5. Explain what products on consignment are and how they are presented on the balance sheets of Retail, Inc., and The Mall Space Company.