A company uses the basic retail method to estimate the cost of ending inventory for interim financial statements.Which of the following responses describe the correct treatment of markups and markdowns in the calculation of the cost-to-retail ratio?

Question

Quizplus · Accepted Answer

In the basic retail method, markups and markdowns are not included in the cost-to-retail ratio calculation. The cost-to-retail ratio is simply the cost of beginning inventory plus the cost of purchases divided by the retail value of beginning inventory plus the retail value of purchases. Markups and markdowns are later applied to determine the estimated cost of ending inventory.

A Company Uses the Basic Retail Method to Estimate the Cost