softtuch1
Jul 31, 2011, 12:36 PM
How do you estimate ending inventory by the gross profit method
pready
Jul 31, 2011, 01:24 PM
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