The retail inventory method is used extensively in the retail industry.
Required:
Discuss the assumptions and benefits of the retail inventory method.

The retail inventory method relies on two basic assumptions.First, that all inventory items have the same markup, or if they have different markups, the proportion of the different items in ending inventory is identical to that of the goods available for sale.Second, the cost-to-retail ratio remains constant throughout the reporting period or the changes in retail prices parallel changes in costs during the period.The major advantages of the retail inventory method are: (1)it permits preparation of interim reports without taking a physical inventory, (2)it simplifies record-keeping procedures because the costs of individual purchases do not need to be maintained and inventory records are based on retail prices, and (3)it expedites year-end inventory counts based on retail prices that can then be compared directly with the accounting records.