Exhibit 9-3 The Donna Company uses the gross profit method to estimate its inventory in interim financial statements.The markup on cost is 50%.The following information is available:
$\begin{array}{ll}
\text { January } 1,2010, \text { inventory balance } & \$ 12,500 \
\text { Purchases } & 25,000 \
\text { Sales churing J anuary } & 24,000
\end{array}$
- Refer to Exhibit 9-3.The estimated cost of goods sold at January 31, 2010, is

Question

Quizplus · Accepted Answer

The cost of goods sold (COGS) can be estimated using the gross profit method with the given markup on cost of 50%. First, calculate the cost of goods available for sale, which is the sum of the beginning inventory and purchases: $12,500 (beginning inventory) + $25,000 (purchases) = $37,500. The sales of $24,000 have a markup of 50%, meaning the cost represents 2/3 of the sales price (since the cost is 100% and the markup is 50%, the total sales price is 150% of the cost, making the cost 2/3 of the sales price). Therefore, the estimated cost of the sales is 2/3 of $24,000 = $16,000.

Exhibit 9-3 the Donna Company Uses the Gross Profit Method