Estimating Inventory Methods

The video tutorial explains how to estimate ending inventory in accounting using two methods: the gross profit method and the retail method. It provides detailed explanations and examples for each method, demonstrating how to calculate ending inventory when a physical count is not possible due to circumstances like fire or theft. The tutorial emphasizes the importance of understanding gross profit percentages and cost-to-retail ratios in these calculations.

What are the two methods discussed for estimating ending inventory?

• Gross profit method and retail method

• FIFO and LIFO methods

• Weighted average and specific identification

• Direct write-off and allowance methods

Why might a company need to estimate its inventory?

• To avoid paying taxes

• To increase sales

• Because counting inventory is always inaccurate

• Due to events like fire, theft, or flood

In the gross profit method, what percentage is assumed for cost of goods sold if the gross profit is 40%?

• 40%

• 50%

• 60%

• 70%

What is the beginning inventory value in the first example of the gross profit method?

• $47,000

• $35,000

• $25,000

• $90,000

How does changing the gross profit percentage affect the ending inventory estimate in Excel?

• It does not affect the estimate

• It only affects the beginning inventory

• It only affects the sales value

• It changes the ending inventory estimate

In the second example of the gross profit method, what is the sales value used?

• $157,000

• $202,000

• $114,000

• $133,000

What is the gross profit percentage in the second example of the gross profit method?

• 34%

• 40%

• 42%

• 66%

What is the cost to retail ratio in the first example of the retail method?

• 80.00%

• 63.41%

• 70.00%

• 50.81%

In the retail method, what does the cost to retail ratio represent?

• The percentage of inventory to sales

• The percentage of profit to sales

• The percentage of cost to retail prices

• The percentage of sales to inventory

What is the estimated cost of ending inventory in the first retail method example?

• $34,561

• $137,600

• $54,500

• $69,910