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  • Apr 3, 2009, 08:36 PM
    wdwj06
    Calculating Inventory
    Here's my situation. I need to know how the ending inventory is calculated on these numbers"

    Beginning inventory = 20776
    purchases of goods in 2008 = 156611
    Other expenses in 2008 = 67803
    Sales in 2008 = 215940

    Your help appreciated.
  • Apr 4, 2009, 01:01 AM
    ROLCAM

    You can approximately do it by having the
    statistics to help you.
    The statistic you need is the average GROSS MARGIN of your business over a few previous years.

    The better way of course is to take a physical count and costing the inventory.

    The assumption is that the gross margin of your business over the last previous five years was 40%.

    You can now work backwards from the figures given to get the CLOSING INVENTORY.

    A) Beginning inventory = 20776
    B) purchases of goods in 2008 = 156611
    C) Other expenses in 2008 = 67803
    D) Sales in 2008 = 215940

    1) The other expenses is no help at all
    although it gives you some gauge as to whether it can be covered by the gross margin.

    2) 40% of 215,940 = 86,376 GROSS MARGIN

    3) Trading Account:-

    D) Sales in 2008********** = 215,940
    ****************=====
    A) Beginning inventory****** = 20,776
    ADD.
    B)purchases of goods in 2008 = 156,611
    __________________________________
    SUB-TOTAL****************= 177,387
    LESS
    X) Closing inventory *********= 47,823
    ___________________________________
    Y) Cost of goods sold ********= 129,564

    Z) GROSS MARGIN ********=86,376.
    ___________________________________

    Based on the assumption the Closing Inventory would have been $47,823.

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