Saurez Company, your client, manufactures paint. The company’s president, Maria Saurez, has decided to open a retail store to sell Saurez paint as well as wallpaper and other supplies that would be purchased from other suppliers. She has asked you for information about the conventional retail method of pricing inventories at the retail store.

Instructions

Prepare a report to the president explaining the retail method of pricing inventories. Your report should include the following points.

a. Description and accounting features of the method.

b. The conditions that may distort the results under the method.

c. A comparison of the advantages of using the retail method with those of using cost methods of inventory pricing.

d. The accounting theory underlying the treatment of net markdowns and net markups under the method.