During a year, Small Wears Ltd. (whose usual gross margin rate on sales is 30 percent) recorded sales of $10,000 and goods available for sale of $12,000. The cost of its ending inventory can be reliably estimated at:
A) $2,000
B) $5,000
C) $7,000
D) $10,000

Question

Quizplus · Accepted Answer

To calculate the cost of ending inventory, we need to subtract the cost of goods sold (COGS) from goods available for sale. COGS can be calculated as (1 - gross margin rate) x sales, which is (1 - 0.30) x $10,000 = $7,000. Therefore, goods available for sale - COGS = ending inventory. 
$12,000 - $7,000 = $5,000, which is the estimated cost of ending inventory. Option B is the closest choice to this estimate.

During a Year, Small Wears Ltd