Estimating Inventories

Estimating Inventories - company's historical gross profit...

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Estimating Inventories Companies sometimes need to determine the value of inventory when a physical count is impossible  or impractical. For example, a company may need to know how much inventory was destroyed in a  fire. Companies using the perpetual system simply report the inventory account balance in such  situations, but companies using the periodic system must estimate the value of inventory. Two ways  of estimating inventory levels are the gross profit method and the retail inventory method. Gross profit method . The gross profit method estimates the value of inventory by applying the 
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Unformatted text preview: company's historical gross profit percentage to current-period information about net sales and the cost of goods available for sale. Gross profit equals net sales minus the cost of goods sold. The gross profit margin equals gross profit divided by net sales. If a company had net sales of $4,000,000 during the previous year and the cost of goods sold during that year was $2,600,000, then gross profit was $1,400,000 and the gross profit margin was 35%. Net Sales $ 4,000,000 Less: Cost of Goods Sold (2,600,000) Gross Profit $ 1,400,000...
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This note was uploaded on 11/14/2011 for the course ACCT 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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