How does Sears avoid counting all its inventory every time it produces financial statements? What are external price indices used for?
Sears uses the dollar-value LIFO retail inventory method. The retail inventory estimation technique avoids the counting of ending inventory by keeping track of goods available for sale not only at cost but also at retail price. Each Periods' sales, at sales prices, are deducted from the retail amount of goods available for sale to arrive at ending inventory at retail. This amount is then converted to cost of using a cost-to-retail percentage.
The dollar-value LIFO retail method uses a price index to first convert ending inventory at retail to base years prices. Yearly LIFO layers are then determined and each layer is converted to that year's current retail prices using the year's price index and then to cost using the layer's cost-to-retail percentage. For the price index, Sears uses an external index rather than an internally generated price index.