Answer
Two major modifications are necessary to the conventional retail method include:
1. The beginning inventory should be excluded from the numerator and denominator of the cost to retail percentage.
2. Markdowns should also be included in the denominator of the cost to retail percentage.
Work Step by Step
The LIFO retail flow method is also used by retailers to achieve the LIFO cost flow without tracking individual units. A further advantage of this is that pools of products are utilized. This will likely reflect less liquidation of LIFO cost layers that would occur with the tracking of individual units.
