Aubergine Industries had beginning inventory of $10,000 and purchased $75,000 of merchandise during 2020.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
A)$67,500.
B)$65,000.
C)$17,500.
D)$22,500.

Question

Quizplus · Accepted Answer

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

Aubergine Industries Had Beginning Inventory of $10,000 and Purchased $75,000