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On September 30 a company needed to estimate its ending inventory to prepare its third quarter...

Question:

On September 30 a company needed to estimate its ending inventory to prepare its third-quarter financial statements. The following information is available:

Beginning inventory, July 1: {eq}\$ \, 5,500 {/eq}

Net sales: {eq}\$ \, 55,000 {/eq}

Net purchases: {eq}\$ \, 63,500 {/eq}

The company's gross margin ratio is {eq}20 \, \% {/eq}. Using the gross profit method find the cost of goods sold.

COGS and Ending Inventory:

The cost of goods sold(COGS) is required to find out the net income made by the company. COGS = Sales - Gross Profit. The gross profit method of finding ending inventory requires the gross profit ratio to be used in order to find out the cost of goods sold. Cost of goods available for sale = Opening stock(Beginning Inventory)+ Purchases made during the period.

Answer and Explanation:

  • Given Net sales = $55000 and Gross profit ratio = 20%
  • Therefore COGS = $55000*(100%-20%)
  • COGS = $44000
  • Cost of Goods available for sale = $5500+$63500...

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Calculate Ending Inventory: Formula & Explanation

from Financial Accounting: Help and Review

Chapter 1 / Lesson 6
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