Extra Manufacturing maintains a gross margin of 30% on all of its merchandise. In March the company had a beginning inventory of $416,800, net purchases of $201,500, and net sales of $660,200. Use the gross profit method to estimate the cost of ending inventory as of March 31.
A) $420,240
B) $569,940
C) $264,080
D) $156,160

Question

Quizplus · Accepted Answer

The cost of goods sold (COGS) is 70% of net sales (100% - 30% gross margin), which is $462,140 (70% of $660,200). The cost of goods available for sale is the beginning inventory plus net purchases, totaling $618,300 ($416,800 + $201,500). The estimated ending inventory is the cost of goods available for sale minus COGS, which is $156,160 ($618,300 - $462,140).

Extra Manufacturing Maintains a Gross Margin of 30% on All