This video shows how to use the retail inventory method in Financial Accounting. The retail inventory method is a quick and cheap way to estimate the ending inventory. Instead of doing a physical count of the inventory, you calculate the cost-to-retail percentage and use it to determine how much inventory was in Cost of Goods Sold, which then allows you to calculate the ending inventory. The video provides an example that shows how to compute the ending inventory using the cost-to-retail percentage.
There are a couple of drawbacks to using the retail inventory method. It is not very accurate if the cost-of-retail percentage is different for each of the products that the company sells or if the cost-of-retail percentage varies over time.