When the retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because:
A) mark-ups are also ignored.
B) this tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold.
C) there may be no markdowns in a given year.
D) this tends to give a better approximation of the lower-of-cost or market.

Question

Quizplus · Accepted Answer

Markdowns are commonly ignored in the computation of the cost to retail ratio when using the retail inventory method because this approach tends to give a better approximation of the lower-of-cost or market. This method aims to value inventory at the lower of its cost or the market value, and by ignoring markdowns, it avoids overstating losses or understating the value of the inventory.

When the Retail Inventory Method Is Used, Markdowns Are Commonly