**the cost of goods sold divided by the average inventory equals the** This is a topic that many people are looking for. **khurak.net** is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, ** khurak.net ** would like to introduce to you **Gross Profit Method (Used To Determine Inventory Lost In A Fire, % Cost Vs % Sales)**. Following along are instructions in the video below:

“We re going to be going through an example. We re going to be using using this gross profit method here to estimate inventory destroyed in a fire. And what have to do is we have to calculate this cost of goods sold before the fire here to determine our what inventory was destroyed here and for our gross profit method. It s going to be based on our sales here are made at 25 percent above cost.

So what do we what do we know here. What was given here. We know that the inventory we had on. Hand here at january 1st of the year was.

1200000. And then we had purchases up until that fire here for the period here from january 1st up until this fire here. We had on 3 1. Here.

We had the fire. We had purchases of 3 million dollars. So our cost of goods available at cost here up until that fire here was four million two hundred thousand dollars. So that s what we re not what s known here so using this gross profit method here we have to calculate our cost of goods.

Sold for the period. Here from 1 1. Up until three one and we re going to determine that here just by going through using this percent of cost here versus our percent of sales. So the easiest way to tackle this here to determine our cost of goods sold is just to go up here and look at how we do that here in this this equation form here.

Sir. We had a twenty five percent markup on our cost here so our cost plus our gross profit equals our sales for the period. So just putting it in unit form here at cost and just being a unit one or one hundred percent plus..

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The twenty five percent markup our gross profit here being twenty five percent markup on our cost or 025 equals our sales. So just doing our separating out our cost here from this unit form here at one plus. 025. Times or cost equals or.

Sales. So our cost here equals our sales that divided by one plus 025. And we know what our sales for the period were sales. We had here for the period was four million one hundred thousand divided by this a one point two five gives us our cost that would be our cost of goods sold here of three million two hundred and eighty thousand dollars.

So going back to our example. Here. We had our goods available. Four million two hundred thousand less our cost of goods sold.

Here three million two hundred and eighty thousand gives us our ending inventory. The difference here gives us ending inventory. And that s the estimated loss. We had here on our inventory of nine hundred and twenty thousand dollars.

So this was easy enough here to figure out here just going through that equation here so our cost of goods sold well that equals our sales minus our gross profit now we can go in here and we can prove this cost of goods sold here through our calculation. We made on above using the art cost of goods sold plus our gross profit equals our sales. So we calculated that here in one fashion here so let s now look at how we d handle this where we had the sales made at twenty five percent above cost here and we must convert that here to percent of sales. So if we go down here and just look at our formula.

Again here. What we have to do here is we have to again set up this formula. Where we have the cost plus a gross profit equals our selling price and if you go through all the math here..

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Again you re going to come up with your cost here at point two five point. 25 percent of your gross profit here is going to be at point 2025. Your cost or 25 percent of your cost. And then your selling price here was what we have here one point.

Two five times your cost one hundred twenty five percent of your cost year and you make the division here and you re going to come up with 20 percent. This is how we convert from the gross to the gross profit on our selling price knowing this markup here. So we have a percentage markup on cost. And we know what that was that with 25 percent and then we end general formula.

We had 100 percent here plus adding this markup on cost of 25 percent. You divide that into your percentage. Markup and cost and just look at it here. So we had a markup and cost here of 25 percent.

We calculate our gross profit on our selling price at 20 percent. So just looking at our math here gross profit here at 20 percent. So now let s go on using this gross profit method here determine what our ending inventory. Here would be and what we would have here we start out with our gross profit on sales just say.

It was 20 percent here we mark up on a cost of 25 percent. Converts over to gross profit on sales of 20 percent that we just calculated here so we had the turn my gross profit on sales that was our sales here of 4 million. One hundred thousand dollars times twenty percent. A gross profit here in our sales taking that amount here.

We re for one four million one hundred thousand times. Twenty percent here gives us eight hundred and twenty thousand dollar gross profit here in our sales. So we know what our gross profit on our sales here being eight hundred and twenty thousand now we can calculate or cost of goods sold here and that s simply the difference here between our sales of four million one hundred thousand less our gross profit here of eight hundred and twenty thousand you can see that here so four million one hundred thousand here less our gross profit on sales of eight hundred and twenty thousand gives us our cost of goods sold here of three million two hundred eighty..

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Thousand use the balancing amount here now to determine our ending inventory. Well. We know what our cost of goods. Sold us that was three million two hundred eighty thousand dollars here and we know what our goods available for sale is that s four four million two hundred thousand dollars.

So just the balancing amount here anding inventory that would be the four million two hundred thousand here and our goods available here less our cost of goods sold that we calculated here of three million two hundred eighty thousand gives us an ending inventory here of nine hundred and twenty thousand dollars. So let s go back and look at our equation here come up with the same amount here. We do we determine our cost of goods sold here you converting it over here to the percent of sales to be three million two hundred eighty thousand and then again we come up with the same amount here for our ending inventory at nine hundred and twenty thousand dollars. So going back here to our cost of goods sold that would be a sales minus our girls profit you can look at it here equals our cost of goods sold so our sales was four million one hundred thousand here less eight hundred and twenty thousand here for a gross profit equals that cost of goods sold here again a three million two hundred eighty thousand and then our gross profit here.

Remember was twenty percent of sales here twenty percent of the 404 million one hundred thousand it was eight hundred and twenty thousand dollars. So we know here we using this percent of sales here. We were able to determine our gross profit here. So let s go back and look at it right in these terms.

Here. So our gross profit. Again was four million. Oh eight twenty percent of the sales here of four million 100000.

Which is equal to eight hundred and twenty thousand here and then our cost of goods sold well you can think of it it would be the difference here eighty percent. We had we had a hundred percent here was our basis here and then if twenty percent here was our gross profit. Then our cost of goods sold would be eighty percent. So eighty percent here times our sales of four million one hundred thousand gives us three million two hundred eighty thousand that we calculated so all i want to point out here is our cost of goods sold is eighty percent.

Here that was the hundred percent. It was a total amount here less. Our gross profit here at twenty percent..

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Gives us eighty percent. Here. So summing up our twenty percent plus or eighty. Percent.

Equals. One hundred percent and that would be our gross profit here of eight hundred and twenty thousand plus. Our cost of goods sold here of three million two hundred eighty thousand equals our sales here are four million one hundred thousand dollars. So this just confirms here how we can two ways here we re just using that equation here to determine our cost of goods sold.

And what i ve done here using this percent of the markup here. We were able to directly determine our cost of goods sold using that equation. And then also using this conversion. Here where we converted our sales at 25 percent of cost above cost to the percent of sales.

We were able to determine our cost of goods sold and then based on that here our cost of goods sold for the period. That s what we sold our ending inventory. That was the amount that was lost here and this other arithmetic here just shows here your cost of goods sold. Here.

Plus. Your gross profit here of eight hundred and twenty thousand dollars. Both had to be calculated here based on in this case was based on that percentage of sales here for a gross profit. So just an example here just looking at the numbers here you can see how we were able to ” .

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