To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation 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 for approximating the lower of cost or market includes markups in the computation of the cost-to-retail ratio but excludes markdowns. This approach helps in maintaining the conservative valuation of inventory by not overstating the value due to price reductions.

To Produce an Inventory Valuation Which Approximates the Lower of Cost