A company loses its opening financial records in a fire.During the following year, it incurred costs of production of $250,000 and sold $300,000 in merchandise.It took an inventory count and found that it had $100,000 in product on hand.What should the company's opening inventory show before the fire?
A)$50,000
B)$100,000
C)$150,000
D)Cannot be determined from the above information.

Question

Quizplus · Accepted Answer

The cost of goods sold can be calculated as follows: COGS = beginning inventory + purchases - ending inventory. We know that purchases for the year were $250,000 and ending inventory was $100,000. Therefore, COGS = beginning inventory + $250,000 - $100,000 = beginning inventory + $150,000. We also know that sales for the year were $300,000, so revenue - COGS = gross profit, or $300,000 - (beginning inventory + $150,000) = gross profit. If we assume a gross profit margin of 40%, for example, we can set up the equation: $300,000 - (beginning inventory + $150,000) = 0.4($300,000) = $120,000. Solving for beginning inventory, we get $150,000 - $120,000 = $30,000. However, the answer choices do not include $30,000, so the closest option is $150,000.

A Company Loses Its Opening Financial Records in a Fire