Use the following information for questions 114 through 118.
The following data concerning the retail inventory method are taken from the financial records of Welch Company.
-Assuming that the LIFO inventory method were used in conjunction with the data and that the inventory at retail had increased during the period, then the computation of retail in the cost-to-retail ratio would
A) exclude both markups and markdowns and include beginning inventory.
B) include markups and exclude both markdowns and beginning inventory.
C) include both markups and markdowns and exclude beginning inventory.
D) exclude markups and include both markdowns and beginning inventory.

Question

Use the following information for questions 114 through 118.
The following data concerning the retail inventory method are taken from the financial records of Welch Company. 
-Assuming that the LIFO inventory method were used in conjunction with the data and that the inventory at retail had increased during the period, then the computation of retail in the cost-to-retail ratio would
A) exclude both markups and markdowns and include beginning inventory. 
B) include markups and exclude both markdowns and beginning inventory. 
C) include both markups and markdowns and exclude beginning inventory. 
D) exclude markups and include both markdowns and beginning inventory.

Quizplus · Accepted Answer

When using the LIFO inventory method, the cost-to-retail ratio must include both markups and markdowns and exclude beginning inventory. This is because LIFO assumes that the last units purchased or produced are the first ones sold, so beginning inventory is not considered. Markups and markdowns are considered because they affect the ending inventory value at retail, which is needed to calculate the cost-to-retail ratio.

Use the Following Information for Questions 114 Through 118