To produce an inventory valuation which approximates lower-of-cost or market using the retail inventory method, the computation of the ratio of cost to retail should:
A) ignore both mark-ups and markdowns.
B) include mark-ups but not markdowns.
C) include markdowns but not mark-ups.
D) include mark-ups and markdowns.

Question

Quizplus · Accepted Answer

Including mark-ups but not markdowns in the computation of the cost-to-retail ratio aligns with the lower-of-cost-or-market principle, as it reflects the potential selling price reductions without inflating the inventory value.

To Produce an Inventory Valuation Which Approximates Lower-Of-Cost or Market