Lucent Technology maintains a gross margin of 40% on all of its merchandise. In April the company had a beginning inventory of $518,700, net purchases of $312,400, and net sales of $750,400. Use the gross profit method to estimate the cost of ending inventory as of March 31.
A) $380,860
B) $329,940
C) $120,000
D) $156,160

Question

Quizplus · Accepted Answer

The gross profit method is used to estimate the cost of ending inventory by subtracting the gross profit from the net sales. The gross profit is calculated by multiplying the net sales by the gross margin percentage. In this case, the gross margin percentage is 40%, so the gross profit is $750,400 x 0.40 = $300,160. The cost of ending inventory is then calculated by subtracting the gross profit from the net sales: $750,400 - $300,160 = $450,240.

Lucent Technology Maintains a Gross Margin of 40% on All