How does Ayayai Company calculate its ending inventory using the conventional retail inventory method?
The Ayayai Company calculates its ending inventory using the conventional retail inventory method by considering the total inventory purchased during the year as the ending inventory value. Since there was no beginning inventory for 2024 and no markdowns occurred during the year, the ending inventory for 2024 represents the entire inventory purchased by the company during that year. This simplifies the inventory calculation process as there is no need to calculate a cost-to-retail ratio or make adjustments.
Conventional Retail Inventory Method
In the conventional retail inventory method, the ending inventory is determined by applying a cost-to-retail ratio to the retail value of the ending inventory. This ratio helps in calculating the cost value of the inventory. However, in the case of Ayayai Company, since there were no beginning inventory or markdowns, the entire inventory purchased during the year can be considered as the ending inventory.
Simplifying Inventory Calculation
This approach simplifies the inventory calculation process for Ayayai Company in their first year of operations. They can sum up the cost of all inventory purchases made during 2024 to determine the ending inventory value. This eliminates the need for complex calculations and adjustments, making the process more straightforward.
By adopting the conventional retail inventory method and considering the total inventory purchased during the year as the ending inventory, Ayayai Company can accurately track their inventory levels and make informed decisions regarding their stock management. This method provides a clear picture of their inventory position without the need for additional calculations or adjustments.