To produce an inventory valuation which approximates the lower of average cost and market using the conventional retail inventory method, the calculation of the ratio of cost to retail should
A)include markups but not markdowns.
B)include markups and markdowns.
C)ignore both markups and markdowns.
D)include markdowns but not markups.

Question

Quizplus · Accepted Answer

The conventional retail inventory method includes markups in the cost-to-retail ratio to approximate the lower of average cost and market, but excludes markdowns to avoid understating inventory value.

To Produce an Inventory Valuation Which Approximates the Lower of Average