When the conventional retail inventory method is used, markdowns are commonly ignored in the calculation 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 and market.
C)markups are also ignored.
D)this tends to result in showing a normal profit margin in a period when no markdown goods have been sold.

Question

Quizplus · Accepted Answer

The conventional retail inventory method is a method of estimating ending inventory by applying a cost-to-retail percentage to the ending inventory at retail value. This method assumes that new goods are added to the inventory at full retail value and that reductions in price (markdowns) will occur only as a result of unsold inventory. Therefore, markdowns are ignored in the calculation of the cost-to-retail ratio in order to give a better approximation of the lower of cost and market. This allows for a more accurate representation of the value of inventory on hand.

When the Conventional Retail Inventory Method Is Used, Markdowns Are