The use of the gross profit method assumes
A) the amount of gross profit is the same as in prior years.
B) sales and cost of goods sold have not changed from previous years.
C) inventory values have not increased from previous years.
D) the relationship between selling price and cost of goods sold is similar to prior years.

Question

Quizplus · Accepted Answer

The gross profit method estimates inventory by applying a gross profit rate to net sales. This method assumes that the relationship between selling price and cost of goods sold (COGS) is consistent with prior periods, allowing for the estimation of the cost of goods sold and, by extension, ending inventory.

The Use of the Gross Profit Method Assumes