Use this information to answer the following question. In addition,beginning merchandise inventory was $44,000 and ending merchandise inventory was $28,000.
Net cost of purchases for the period were
A) $154,000.
B) $90,000.
C) $114,000.
D) $138,000.

Question

Use this information to answer the following question.  In addition,beginning merchandise inventory was $44,000 and ending merchandise inventory was $28,000.
Net cost of purchases for the period were
A) $154,000. 
B) $90,000. 
C) $114,000. 
D) $138,000.

Quizplus · Accepted Answer

Using the formula for calculating net cost of purchases:
Net Cost of Purchases = cost of goods sold + ending inventory - beginning inventory
We are given that ending inventory was $28,000 and beginning inventory was $44,000. We also know the cost of goods sold is $122,000 (calculated by subtracting gross profit of $98,000 from total net sales of $220,000). 
Therefore, 
Net Cost of Purchases = $122,000 + $28,000 - $44,000 
= $106,000 
But the question asks for the net cost of purchases only, so we will subtract the ending inventory from this to get:
Net Cost of Purchases = $106,000 - $28,000 
= $78,000 
However, this is the cost, not the net cost. We need to deduct any purchase returns and allowances, and purchase discounts to get the net cost. None of these figures are given, so we can assume they are zero. 
Therefore, 
Net Cost of Purchases = $78,000 
which corresponds to choice C.

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