The following information is available for Kobold Company for 2010: The cost of goods sold is equal to 400% of selling expenses.What is the cost of goods available for sale?
A)$420,000.
B)$390,000.
C)$750,000.
D)$720,000.

Question

The following information is available for Kobold Company for 2010:  The cost of goods sold is equal to 400% of selling expenses.What is the cost of goods available for sale?
A)$420,000. 
B)$390,000. 
C)$750,000. 
D)$720,000.

Quizplus · Accepted Answer

We can use the following formula to calculate the cost of goods available for sale:
Beginning Inventory + Purchases = Cost of Goods Available for Sale
Unfortunately, we do not have information on either the beginning inventory or purchases. However, we do know that the cost of goods sold is equal to 400% of selling expenses. Let X be the selling expenses, then the cost of goods sold is 4X.

We also know that the cost of goods sold can be calculated using the following formula:
Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold

Assuming that there is no ending inventory, we can rewrite this formula as:
Beginning Inventory + Purchases = Cost of Goods Sold

Since we know that Cost of Goods Sold = 4X, we can substitute and get:
Beginning Inventory + Purchases = 4X

We can then use this equation along with the formula for Cost of Goods Available for Sale to solve for it:
Beginning Inventory + Purchases = Cost of Goods Available for Sale
Beginning Inventory + Purchases = 4X
Cost of Goods Available for Sale = 4X (since there is no beginning inventory)

Therefore, the cost of goods available for sale is equal to 4 times the selling expenses. If we assume that selling expenses are $187,500 (based on the information given in the table), then the cost of goods available for sale would be $750,000 (4 times $187,500). Therefore, the correct answer is Choice C.

The Following Information Is Available for Kobold Company for 2010