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

Question

Quizplus · Accepted Answer

Markdowns are commonly ignored in the computation of the cost to retail ratio when using the conventional retail inventory method because this approach tends to give a better approximation of the lower of cost or market. This method aims to estimate the ending inventory at the lower of cost or market by comparing the cost and retail values of the inventory, and ignoring markdowns helps in achieving a more accurate approximation of this comparison.

When the Conventional Retail Inventory Method Is Used, Markdowns Are