Grey Industries. had beginning inventory of $10,000 and purchased $75,000 during 2017. The company had sales of $90,000 and has traditionally had a cost-to-sales ratio of 75%. Using the gross margin estimation method, the company estimates its ending inventory to be

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The cost of goods sold (COGS) is estimated using the cost-to-sales ratio of 75%, so COGS = 0.75 * $90,000 = $67,500. The cost of goods available for sale is the beginning inventory plus purchases, which is $10,000 + $75,000 = $85,000. The ending inventory is the cost of goods available for sale minus COGS, which is $85,000 - $67,500 = $17,500.