Gross Margin Method

Question 1

When is the gross margin method used?

Answer 1

When it is not possible to determine ending inventory because of a fire or something.

Question 2

What is the gross margin method?

Answer 2

The gross margin method estimates cost of goods sold based off of gross margin.

Question 3

Keys to answer gross margin questions

Answer 3

If the question gives you margin on sales, set sales to 100

If the question gives you mark up on cost, set cost to 100

Question 4

What is the equation for margin?

Answer 4

Sales-cost= Margin

Cost + Margin = Sales

Question 5

What is the difference between margin on sales and margin on cost?

Answer 5

Margin/Sales

Margin/Cost of goods

Question 6

What is the relative sales method?

Answer 6

A method to allocate initial cost in a basket purchase to the individual items.

Sometimes multiple inventory items are purchased together at a significant discount.

Inventory value is allocated based on their relative selling price.