What is the effect of freight-in on the cost-to-retail ratio when using the conventional retail method?
A) Increases the cost-to-retail ratio.
B) No effect on the cost-to-retail ratio.
C) Depends on the amount of the net markups.
D) Decreases the cost-to-retail ratio.

Question

Quizplus · Accepted Answer

Freight-in is an additional cost of inventory that increases the cost of goods sold. In the conventional retail method, the cost-to-retail ratio is calculated by dividing the cost of goods sold by the retail value of the goods. Therefore, if the cost of goods sold increases due to freight-in, the cost-to-retail ratio will also increase.

What Is the Effect of Freight-In on the Cost-To-Retail Ratio