How do you estimate ending inventory by the gross profit method

First you have to calculate the gross profit percentage by dividing your gross profit by your sales:

For example your gross profit is $126,000 divided by sales of $210,000 equals 60%

Next you have to know your beiginning inventory plus your purchases, which equals your inventory available for sale.

Now you can calculate your ending inventory.

For example: your inventory available for sale is $100,000

Your Sales of $210,000 times the gross profit percentage of 60% equals incentory sold of $84,000.

Your inventory available for sale of $100,000 minus inventory sold of $84,000 equals ending inventory of $16,000