Card Set Information
Definitions and Examples
Gross Profit Relies on 3 assumptions:
1.Beg.Inv + Purchases = total goods to be accounted for.
2. Goods not sold must be on hand.
3. sales, reduced to cost, deducted from the sum of the opening inventory + Purchases = ending inventory
Ex. GP Method
Cetus Corp.has beginning
of $60k and purchases of 200k, both at cost. Sales at selling price amount to 280k. The GP on selling price is 30%
Beg.Inv. (at cost) 60,000
Purchases (at cost) 200,000
Goods Available (at cost) =260,000
Sales(at selling price) 280,000
Less GP(30% of 280k) (84,000)
Sales (at cost) 196,000
Approx.Inventory (at cost) 64,000
Stated as a % of selling price.
GP % example:
Article cost $15 and sells for $20, a gp of $5. What is the markup on retail and cost?
Markup/retail=5/20=1/4=25% at retail
Markup/cost=5/15=1/3=33 1/3 % on cost
GP Method disadvantages
1. Provides an estimate.
2. uses past percentages in determining mark up.
3. Must be careful in applying a blanket gp rate.
Retail Inventory method requires that the retailer keep a record of:
1. total cost and retail value of goods purchased
2. total cost and retail value of goods available for sales
3. sales for the period
Cost of retail ratio
Divide the total good available for sale by total goods available at retail price
3 versions of retail inventory method
1. Conventional Method
2. Lifo retail
3. Dollar value Lifo
Markup in Retail method
additional markup of the original retail price
decreases in prices of merchandise that the retailer had marked up above the original retail price
occur when markdowns are later offset by increases in the prices of goods that the retailer had marked down
decreases in original sales prices