It is used in retail business
or in business where the stock consists of items whose individual costs cannot be
readily asertained. At first, the retail price of the goods is ascertained and from that the
anticipated gross margin of profit on such goods is deducted. The calculation of the said
gross margin may be made for individual items or groups of items or by the individual
departments where departmental accounting is possible.
This method may also be used in manufacturing organisations which like to value inventory
of finished products held against forward sale contracts.
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