Example on gross margin method, Accounting Basics

Assignment Help:

Q. Example on gross margin method?

To demonstrate the gross margin method of computing inventory assumes that for several Years Field Company has maintained a 30 per cent gross margin on net sales. The subsequent data for 2010 are available The January 1 inventory was USD 40000 net cost of purchases of merchandise was USD 480000 and net sales of merchandise were USD 700000. As display in Exhibit 63 Field is able to estimate the inventory for 2010 December 31 by deducting the estimated cost of goods sold from the actual cost of goods available for sale.

An alternative format for computing estimated ending inventory uses the standard income statement format and solves for the one unknown (ending inventory)

620_Example on gross margin method.png

We recognize that Costs of goods available for sale-Ending inventory=Cost of goods sold

Therefore (let X = Ending inventory) USD 520000 - X = USD 490000

X = USD 30000

The gross margin method isn't precise enough to be used for year-end financial statements. At year-end a physical inventory should be taken and valued by either the FIFO, LIFO, specific identification or weighted-average methods.


Related Discussions:- Example on gross margin method

Explain about manufacturing companies, Q. Explain about Manufacturing compa...

Q. Explain about Manufacturing companies? Manufacturing companies purchase materials convert them into products and then sell the products to other companies or else to the fin

Probability, he chairperson of the accounting department has three summer ...

he chairperson of the accounting department has three summer courses available: Accounting 201, Accounting 202, and Accounting 305. Twelve faculty members are available for assign

What is date column in journal, Q. What is Date column in journal? The ...

Q. What is Date column in journal? The first column on every journal page is for the date. Intended for the first journal entry on a page this column contains the year and mont

Define the opportunity cost, Q. Define the Opportunity cost? Opportunit...

Q. Define the Opportunity cost? Opportunity cost -- a useful notion in evaluating alternate opportunities. If you choosealternative A, you can't choose B, C, or D. What is the

Show periodicity concept, Q. Show Periodicity concept? As per to the pe...

Q. Show Periodicity concept? As per to the periodicity (time periods) concept or assumption an entity's life can be meaningfully subdivided into time periods (such as months or

Briefly explain the term depreciation, Question: Part A: Briefly exp...

Question: Part A: Briefly explain the term "depreciation" and give three reasons why do we need to provide for depreciation on fixed assets during a financial year. Part

Define operating expenses, Q. Define Operating expenses? Operating expe...

Q. Define Operating expenses? Operating expenses for a merchandising company are those expenses other than cost of goods sold incurred in the usual business functions of a comp

Hi, 1. Carmen Santiago works for a number of businesses as a  “consultant...

1. Carmen Santiago works for a number of businesses as a  “consultant.” She has helped design accounting systems,  provided accounting services, and analyzed the financial  s

Journal, Why to and by using in journal, trading a/c, p&l a/c and ledger?

Why to and by using in journal, trading a/c, p&l a/c and ledger?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd