Cost of Ending Inventory

Two methods of estimating the value of inventory are the retail inventory method and the gross profit method. Under the retail method, inventory is determined at retail prices and is then reduced to estimate cost by applying a ratio of cost to retail price. Under the gross profit method, cost of goods sold is estimated by reducing sales by estimated gross margin. The estimated cost of goods sold is then deducted from the cost of goods available for sale to estimate the inventory.

• Gross Profit Method
• Retail Method