Which of the following is NOT a premise upon which the gross profit method of estimating inventory is based?
A) Beginning inventory plus purchases equals cost of goods available for sale.
B) The gross profit must be equal to the contribution margin on goods sold.
C) Goods not included in cost of goods sold must be on hand in ending inventory.
D) When an estimate of cost of goods sold is deducted from cost of goods available for sale, the result is an estimate of ending inventory.

Question

Quizplus · Accepted Answer

The gross profit method of estimating inventory is based on the premise that beginning inventory plus purchases equals cost of goods available for sale, goods not included in cost of goods sold must be on hand in ending inventory, and when an estimate of cost of goods sold is deducted from cost of goods available for sale, the result is an estimate of ending inventory. However, the gross profit does not have to be equal to the contribution margin on goods sold.

Which of the Following Is NOT a Premise Upon Which