BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Weighted average
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First-in, first-out
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Last-in, first-out
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Gross profit method
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Detailed explanation-1: -The gross profit method estimates the value of inventory by applying the 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.
Detailed explanation-2: -It uses the gross profit method to estimate ending inventory based on its net sales and expected gross profit margin. The company uses the gross profit method formula to estimate COGS: net sales x (1-expected gross profit margin).
Detailed explanation-3: -What are the different inventory valuation methods? There are three methods for inventory valuation: FIFO (First In, First Out), LIFO (Last In, First Out), and WAC (Weighted Average Cost).
Detailed explanation-4: -Gross margin is expressed as a percentage. In order to calculate it, first subtract the cost of goods sold from the company’s revenue. This figure is known as the company’s gross profit (as a dollar figure). Then divide that figure by the total revenue and multiply it by 100 to get the gross margin.