based on the relationship
and retail price
. It entails these steps: (1) maintaining detailed record
of all purchases and on-hand goods
at both cost price and retail price, (2) computing a cost-to-retail percentage (Formula: Cost price x 100 ÷ Retail price), (3) estimating
ending-inventory at retail prices by subtracting the retail price of goods sold from the retail price of goods in inventory
, and (4) converting the estimated inventory at retail price to cost price by applying the cost-to-retail percentage computed in step #2. Also called retail inventory estimation method.