The gross profit method of inventory valuation
A) can be used as a substitute for the annual physical count of inventory.
B) assumes past percentages are appropriate for the current period.
C) uses markups but not markdowns.
D) is designed to approximate inventory valuation at the lower of cost and net realizable value.

Question

Quizplus · Accepted Answer

The gross profit method assumes that past percentages of gross profit are appropriate for the current period and uses this percentage to estimate the cost of goods sold and ending inventory. However, it is not a substitute for the physical inventory count, and it does take into account both markups and markdowns. It is not specifically designed to approximate inventory valuation at the lower of cost and net realizable value.

The Gross Profit Method of Inventory Valuation