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26 December, 17:55

All of the following are reasons to use an estimated method of costing inventory except: A. perpetual inventory records are not maintained. B. purchase records are not maintained. C. a disaster has destroyed the inventory records and the inventory. D. interim financial statements are required but physical inventory is only taken at the end of the financial accounting period.

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  1. 26 December, 18:15
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    The answer is: B) purchase records are not maintained.

    Explanation:

    There are two methods for estimating inventory costs:

    Gross Profit Method : uses the information from the income statement. If operating conditions remain similar, the proportion between total sales, profits and COGS should be similar (lets say profit is 30% and COGS is 70% of total sales). You can estimate your inventory costs by using the information on total sales. Retail Method: It is used mostly by merchandising firms (retailers) that have consistent mark-ups. You have to determine the proportion between cost and retail price (lets say the COGS is 80% of the retail price). Then if you are given the retail inventory, you can determine the COGS using the proportion determined previously.
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