Gross Profit method: Gross Profit method is used to estimate the value of ending inventory and cost of goods sold. Under this method a gross profit ratio is used to calculate the estimated cost of the inventory. Following formulas are used to derive the cost of ending inventory: The formula for gross profit ratio is as follows: G r o s s P r o f i t = G r o s s P r o f i t S a l e s The formula to calculate the Cost of goods sold is as follows: C o s t o f g o o d s s o l d = N e t S a l e s – G r o s s p r o f i t The formula to calculate the ending inventory is as follows: C o s t o f E n d i n g i n v e n t o r y = B e g i n n i n g i n v e n t o r y a t c o s t + C o s t o f g o o d s p u r c h a s e d – C o s t o f g o o d s s o l d To determine: The estimated Cost of ending inventory using the Gross profit method

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Chapter 6, Problem 17BE

To determine

Concept Introduction:

Gross Profit method: Gross Profit method is used to estimate the value of ending inventory and cost of goods sold. Under this method a gross profit ratio is used to calculate the estimated cost of the inventory. Following formulas are used to derive the cost of ending inventory:

The formula for gross profit ratio is as follows:

$G r o s s P r o f i t = \frac{G r o s s P r o f i t}{S a l e s}$

The formula to calculate the Cost of goods sold is as follows:

$C o s t o f g o o d s s o l d = N e t S a l e s - G r o s s p r o f i t$

The formula to calculate the ending inventory is as follows:

$C o s t o f E n d i n g i n v e n t o r y = B e g i n n i n g i n v e n t o r y a t c o s t + C o s t o f g o o d s p u r c h a s e d - C o s t o f g o o d s s o l d$

To determine: The estimated Cost of ending inventory using the Gross profit method

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