Question

When using the gross profit method to estimate ending inventory, it is not necessary to know: Question 10 options: A) Net purchases. B) Beginning inventory. C) Net sales. D) Cost of goods sold.

Answer 1

.Answer:

D) Cost of goods sold

Explanation:

We determinate the cost of goods sold from the net sales from a given percentage of gross profit

for example:

if net sales are 200 dollars

and gross profit margin is 30%

this means 30% is gross profit while 70% is COGS

200 x 70% = 140 dollars

The rest of the data is required to determinate the ending inventory

without the beginning inventory we cannot complete the inventory identity:

$Beginning Inventory + Purchase = Ending Inventory + COGS$

We need net sales to estimate COGS

and we need net pruchases which is also in the inventory identity.