Question

Amber is in charge of preparing an annual budget for her company. As part ofthe budgeting process, she must estimate cost of goods sold and ending inventory. Which of the following statements is correct regarding the use of the gross profit method?
-Amber may utilize the gross profit method to estimate ending inventory and cost of goods sold

Answer 1

Complete question:

amber is in charge of preparing an annual budget for her company. as part of the budgeting process, she must estimate COGS and ending inventory. which of the following statements is correct regarding the use of the gross profit method

amber must take a physical inventory to determine ending inventory and COGS

amber may utilize the gross profit method, but must also take a physical inventory

amber may utilize the gross profit method to estimate ending inventory and COGS

Answer:

Amber may utilize the gross profit method to estimate ending inventory and COGS

Explanation:

The gross profit method is a strategy used to measure the value at the end of the product. The method may be used with monthly accounting statements where a physical warehouse is not feasible.

(However, it is not a substitution for an actual physical inventory.) It is often used to measure the volume of lost products incurred by burglary, accident or other disasters.

For example, if a business buys products of $80 and sells them for $100, the gross profit is $20.