The Sandberg Paint Company, your client, manufactures paint. The company’s president, Ms. Sandberg, has decided to open a retail store to sell Sandberg paint as well as wallpaper and other supplies that it would purchase from other suppliers. She has asked you for information about the retail method of pricing inventories at the retail store.
Required

Prepare a report to the president explaining the retail method of pricing inventories. Your report should include these four points:
1. Description and accounting features of the method.
2. The conditions that may distort the results under the method.
3. A comparison of the advantages of using the retail method with those of using cost methods of inventory pricing.
4. The accounting theory underlying the treatment of net markdowns and net markups under the method.