IAS 2Chapter 4Lesson 4
Techniques for measuring cost: standard cost and the retail method
Step 1 of 8Learning objectives
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Standard cost and the retail method are calculation shortcuts, not alternative measurement bases: they are permitted only if their result approximates cost. A standard is based on normal levels of consumption, efficiency and capacity, and must be reviewed regularly; the retail method deducts an appropriate gross margin percentage, which takes markdowns into account and is often calculated by department, from the sales value of the inventories.
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Learning objectives
- Explain why standard cost and the retail method are convenience techniques permitted only if their result approximates cost.
- Identify the bases of a standard cost and recognise when it must be revised.
- Calculate the cost of inventories using the retail method, department by department, from the sales value after markdowns.