Comet Company prepares monthly income statements.A physical inventory is taken only at year-end; hence,month-end inventories must be estimated.All sales are made on account.The rate of markup on cost is 50 percent.The following information relates to the month of May:

The estimated cost of the May 31 inventory is

Question

Comet Company prepares monthly income statements.A physical inventory is taken only at year-end; hence,month-end inventories must be estimated.All sales are made on account.The rate of markup on cost is 50 percent.The following information relates to the month of May:

The estimated cost of the May 31 inventory is

Quizplus · Accepted Answer

To estimate the cost of May 31 inventory, we need to use the Cost of Goods Sold (COGS) formula:

COGS = Beginning Inventory + Purchases - Ending Inventory

We know that the beginning inventory is $30,000 and the purchases for the month are $80,000. We need to calculate the COGS for the month:

COGS = $30,000 + $80,000 - X
COGS = $110,000 - X

We know that the rate of markup on cost is 50%, so we can calculate the cost of goods sold as a percentage of the selling price:

Cost of Goods Sold = Selling Price / (1 + Markup Rate)
Cost of Goods Sold = $220,000 / (1 + 0.5)
Cost of Goods Sold = $220,000 / 1.5
Cost of Goods Sold = $146,666.67

Now we can solve for X:

$146,666.67 = $110,000 - X
X = $36,666.67

Therefore, the estimated cost of the May 31 inventory is $36,666.67, which is closest to choice B, $28,000.

Comet Company Prepares Monthly Income Statements