If the gross margin percentage used in the gross margin method were overstated (e.g., 36% instead of 32%), what would happen?
A)Cost of goods sold would be overstated.
B)Ending inventory would be understated.
C)Ending inventory would be overstated.
D)Ending inventory would be correctly stated, but beginning inventory would be incorrect.

Question

Quizplus · Accepted Answer

When the gross margin percentage is overstated, it implies that the cost of goods sold (COGS) is understated because gross margin is calculated as sales minus COGS. If COGS is understated, then the ending inventory is overstated because the cost that should have been allocated to COGS remains in inventory.

If the Gross Margin Percentage Used in the Gross Margin