When calculating the cost-to-retail ratio, net markups and markdowns are

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Net markups and markdowns are included in the computation of the ending inventory at retail in order to accurately reflect the cost-to-retail ratio. This ratio is used by retailers to determine the markup necessary to cover the cost of goods sold and generate a profit. Including net markups and markdowns in the ending inventory calculation ensures that the ratio is based on the actual cost and selling price of the merchandise.

When Calculating the Cost-To-Retail Ratio, Net Markups and Markdowns Are