Estimating Inventories

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Presentation transcript:

Estimating Inventories

Gross Profit Method Estimated Gross Profit = Net Sales x GPM Net Sales – Estimate Gross Profit = COGS Step 1. Net Sales 200,000 Less: Estimated GP (30% of 200k) 60,000 Estimated COGS 140,000 Step 2. Beginning Inventory 40,000 Purchases 120,000 Goods Available for Sale 160,000 Less: Estimated COGS 140,000 Estimated Ending Inventory 20,000

Retail Inventory Method Goods Available for Sale at Retail Net Sales Ending Inventory at Retail = - Goods Available for Sale at Cost Goods Available for Sale at Retail Cost to Retail Ratio = Cost to Retail Ratio Ending Inventory at Retail Estimated Cost of Ending Inventory =

Retail Inventory Method Estimation At Cost At Retail Beginning Inventory $14,000 $21,500 Good Purchased 61,000 78,500 Good available for sale 75,000 100,000 Net Sales 70,000 (1) Ending Inventory at retail 30,000 (2) Cost to Retail Ratio = 75% (3) Estimated cost of ending inventory (30,000 x 75%) 22,500