A company that has operated with a 30% average gross profit ratio for a number of years had $110,000 in net sales during the first quarter of this year. If it began thequarter with $28,000 in inventory at cost and purchased $75,000 of merchandise during the quarter, its estimated ending inventory by the gross profit method is:

Question

Quizplus · Accepted Answer

First, we need to calculate the cost of goods sold:
Beginning inventory: $28,000
Purchases: $75,000
Cost of goods available for sale: $103,000
Cost of goods sold (70% of net sales): $77,000 ($110,000 x 0.7)

To estimate the ending inventory, we can use the gross profit method formula:

Ending Inventory = Cost of goods available for sale - Cost of goods sold - Gross Profit

We know the cost of goods available for sale ($103,000) and the cost of goods sold ($77,000). We also know that the company has a 30% gross profit ratio, so we can calculate gross profit as:

Gross Profit = Net Sales - Cost of Goods Sold
Gross Profit = $110,000 - $77,000
Gross Profit = $33,000

Now we can calculate the estimated ending inventory:

Ending Inventory = $103,000 - $77,000 - $33,000
Ending Inventory = $26,000

Therefore, the best choice is B.

A Company That Has Operated with a 30% Average Gross