A Company Uses the Basic Retail Method to Estimate the Cost

question 32

Multiple Choice

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?

• A) \[\begin{array} { | c | c | }
• \hline \text { Markups } & \text { Markdowns } \\
• \hline \text { add } & \text { subtract } \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | c | c | }
• \hline \text { Markups } & \text { Markdowns } \\
• \hline \text { add } & \text { exclude } \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | c | c | }
• \hline \text { Markups } & \text { Markdowns } \\
• \hline \text { subtract } & \text { add } \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | c | c | }
• \hline \text { Markups } & \text { Markdowns } \\
• \hline \text { exclude } & \text { exclude } \\
• \hline
• \end{array}\]

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Definitions:

Gross Domestic Product

The total value of all goods and services produced within a country's borders in a specific time period, used as an indicator of economic health.

Final Goods

Products that are consumed by the end user and do not require further processing or manufacturing.

Services Produced

Economic activities that provide intangible products, such as entertainment, healthcare, and education.

Real GDP

Gross Domestic Product adjusted for inflation, providing a more accurate reflection of an economy's size and growth.