Final answer:
The gross margin percentage is calculated by dividing the gross margin by the net sales and multiplying by 100. By calculating the gross margin percentage for prior years, we can estimate the expected gross margin percentage for the current year's ending inventory.
Step-by-step explanation:
The gross margin percentage is calculated by dividing the gross margin by the net sales and multiplying by 100. The gross margin is the difference between the sales revenue and the cost of goods sold. By calculating the gross margin percentage for prior years, we can estimate the expected gross margin percentage for the current year's ending inventory.
For example, if a company's net sales for the previous year were $500,000 and the cost of goods sold was $300,000, the gross margin would be $200,000. To calculate the gross margin percentage, we divide $200,000 by $500,000 and multiply by 100, resulting in a gross margin percentage of 40%.