Asked by ricardo Velazquez on May 04, 2024
Verified
Explain the reason a company might use gross profit inventory method for valuing inventory.
Gross Profit Inventory Method
An accounting method to estimate the value of ending inventory and cost of goods sold using the gross profit margin.
Inventory Valuation
The method used to determine the cost associated with an inventory at the end of an accounting period, impacting the cost of goods sold and net income.
Gross Profit
The financial metric indicating the difference between revenue and the cost of goods sold (COGS), reflecting the efficiency of core operations.
- Describe the importance and use of the gross profit inventory method for valuing inventory.
Verified Answer
EG
Efren GarciaMay 11, 2024
Final Answer :
The gross profit method is often used when inventory is destroyed,lost or stolen.The cost of ending inventory is estimated by applying the gross profit ratio to net sales at retail.Companies may need an estimate of inventory to file a claim on a loss with its insurer.
Learning Objectives
- Describe the importance and use of the gross profit inventory method for valuing inventory.