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subtracted from cost of goods available for sale during that
period to produce a figure for cost of goods sold.
In simplified terms, the process of converting the current
year retail value of ending inventory to cost of ending inventory
involves dividing the current year retail value of ending
inventory by the current retail price index (which, for retailers
using U.S. Bureau of Labor Statistics (BLS) indexes, is the
current BLS price index for the particular inventory pool divided
by the BLS price index for the year in which that pool was
adopted (base year)) to yield a figure for current year retail
value of ending inventory expressed in base year dollars.
Comparing that result to a similar figure computed as of the end
of the immediately preceding accounting period reveals whether an
increment or decrement in the quantity of goods has occurred as
of the end of the period, as opposed to mere changes in retail
price levels. If there has been no decrement in the quantity of
goods as of the end of the period, cost of ending inventory is
the sum of the prior year's cost of ending inventory plus the
cost of the quantity of inventory in the current increment (if
any). The retail value of the increment expressed in base year
dollars is multiplied by the current year's retail price index
and then multiplied by the cost complement8 to arrive at the cost
8 Generally, the cost complement is the weighted average
relationship between the cost of current year purchases and the
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