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Almaden Valley Variety Store uses the retail inventory method to estimate ending inventory and cost of goods sold. What data is available for this method?

1) Beginning inventory, purchases, and sales
2) Ending inventory, cost of goods sold, and sales
3) Beginning inventory, cost of goods sold, and sales
4) Ending inventory, purchases, and cost of goods sold

1 Answer

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Final answer:

The Almaden Valley Variety Store needs beginning inventory, purchases, and sales data to estimate ending inventory and cost of goods sold using the retail inventory method.

Step-by-step explanation:

The retail inventory method used by the Almaden Valley Variety Store to estimate ending inventory and cost of goods sold requires the following data: beginning inventory, purchases, and sales. This data allows the store to calculate the cost-to-retail ratio and estimate ending inventory based on the goods available for sale and the sales made during the period.

To perform the retail inventory method, the store would first add together the cost of the beginning inventory and the cost of purchases to get the total cost of goods available for sale. Then, the store would calculate a cost-to-retail ratio by dividing the total cost of goods available for sale by the total retail value of goods available for sale. Finally, the ending inventory at retail is subtracted from sales to estimate the ending inventory at cost, which is applied to determine the cost of goods sold for the period.

Here's a step-by-step explanation of how the retail inventory method works:

Calculate the cost-to-retail ratio by dividing the total cost of goods available for sale by the total retail value of goods available for sale.

Estimate the ending inventory by multiplying the retail value of the goods on hand by the cost-to-retail ratio.

Calculate the cost of goods sold by subtracting the estimated ending inventory from the cost of goods available for sale.

By using the beginning inventory, purchases, and sales data, businesses can determine the value of the ending inventory and the cost of goods sold using the retail inventory method.

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