At the beginning of the year, Hinz Company had an inventory of $400,000. During the year, the company purchased goods costing $1,600,000. If Hinz Company reported ending inventory of $600,000 and sales of $2,000,000, the company's cost of goods sold and gross profit rate must be
A) $1,000,000 and 50%.
B) $1,400,000 and 30%.
C) $1,000,000 and 30%.
D) $1,400,000 and 70%.

Question

Quizplus · Accepted Answer

Cost of goods sold can be calculated by subtracting the ending inventory from the sum of beginning inventory and purchases:

COGS = Beginning Inventory + Purchases - Ending Inventory
COGS = $400,000 + $1,600,000 - $600,000
COGS = $1,400,000

Gross profit rate can be calculated by dividing the gross profit by sales:

Gross Profit Rate = Gross Profit / Sales

Gross profit can be calculated by subtracting the cost of goods sold from sales:

Gross Profit = Sales - COGS
Gross Profit = $2,000,000 - $1,400,000
Gross Profit = $600,000

Gross profit rate = $600,000 / $2,000,000
Gross profit rate = 0.3 or 30%

Therefore, the correct answer is B, $1,400,000 and 30%.

At the Beginning of the Year, Hinz Company Had an Inventory