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:

$GrossProfit=\frac{GrossProfit}{Sales}$

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

$Costofgoodssold =NetSales–Grossprofit$

The formula to calculate the ending inventory is as follows:

$CostofEndinginventory=Beginninginventoryatcost+Costofgoodspurchased–Costofgoodssold$

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