Ending inventory is a crucial value representing the cost of goods that a company still holds for sale at the end of an accounting period. In the context of the gross profit method, it is estimated using the cost of goods available for sale and the calculated cost of goods sold.
By applying the gross profit method, businesses can estimably conclude their inventory values without counting physical inventory. This is especially beneficial when physical inventory counts are impractical.
- Begin by identifying the cost of goods available for sale.
- Next, subtract the cost of goods sold from this total.
In summary, for Songbird Company, the ending inventory is determined by calculating:- Cost of Goods Available for Sale (\(\\(135,000\))- Subtracting the Cost of Goods Sold (\(\\)105,000\))- Resulting in the Ending Inventory of \(\$30,000\).
This method allows companies to promptly gauge their inventory levels, aiding in effective stock management.