If the net markdowns are excluded from the calculation of the cost-to-retail ratio in the retail inventory method, the ending inventory's valuation is lower because of which of the following effects on the cost-to-retail ratio?

A) The denominator of the ratio will be lower, which results in a higher cost-to-retail ratio.
B) The denominator of the ratio will be higher, which results in a lower cost-to-retail ratio.
C) The numerator of the ratio will be higher, which results in a higher cost-to-retail ratio.
D) The numerator of the ratio will be lower, which results in a lower cost-to-retail ratio.

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Arash Singh · Accepted Answer

Final Answer : B, Explanation :  Excluding net markdowns from the cost-to-retail ratio calculation will result in a higher denominator, as the retail value remains the same but the cost value is reduced. This will result in a lower cost-to-retail ratio, which leads to a lower ending inventory valuation.

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