Gross Margin and Relative sales method

Question 1

What is the Gross Margin Percentage Formula?

Answer 1

(Sales-COGS)/Sales

Question 2

Can the gross margin method for inventory be used for Financial Reporting?

Answer 2

No, can only be used for interim periods where physical counts of inventory is too costly or inventory is destroyed from a casualty

Question 3

What is the purpose of the Gross margin method of inventory valuation?

Answer 3

Estimates COGS from sales using a percentage based on historical data. The, ending inventory can be inferred from beginning inventory, purchases and COGS

Question 4

Which is always larger, margin on sales or margin on cost?

Answer 4

Margin on cost

Question 5

List the Margin on Cost formula

Answer 5

(Sales-COGS)/COGS

Question 6

What are the methods used for estimating ending inventory?

Answer 6

1. )Gross Margin method;
2. )Retail Inventory method;
3. )Dollar Value LIFO Retail method

Question 7

What is the formula for ending inventory for the gross margin method?

Answer 7

(Beginning inventory + net purchases) − (sales × (cost/sales ratio)) = Ending Inventory

Question 8

What ratio is multiplied to Sales to estimate Cost of Goods Sold (COGS)?

Answer 8

The cost/sales ratio. (1-Gross margin %)