How does the retail inventory method establish the lower-of-cost-or-market valuation for ending inventory?

 How does the retail inventory method establish the lower-of-cost-or-market valuation for ending inventory?
The procedure is applied on a cost basis at the unit level.
By excluding net markups from the cost-to-retail ratio.
By excluding beginning inventory from the cost-to-retail ratio.
By excluding net markdowns from the cost-to-retail ratio.

Answer

By excluding net markdowns from the cost-to-retail ratio.

 You Answered Correctly!
Although the result is approximate, by excluding net markdowns from the denominator of the cost-to-retail ratio, the ratio is a smaller amount, resulting in a lower ending inventory valuation.