Fargone Products began its fiscal year with $38,000 in inventory at cost and purchased $65,000 of goods during the year. Net sales for the year totalled $150,000. Assuming the company has operated with a 35% average gross profit ratio for a number of years, what is the estimated ending inventory using the gross profit method?

Question

Quizplus · Accepted Answer

The cost of goods sold (COGS) is 65% of net sales (100% - 35% gross profit). COGS = $150,000 * 65% = $97,500. Beginning inventory + Purchases - COGS = Ending inventory. $38,000 + $65,000 - $97,500 = $5,500.

Fargone Products Began Its Fiscal Year with $38,000 in Inventory