How do you estimate ending inventory by the gross profit method
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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
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