Desired ending inventory is 25% more than beginning inventory. If purchases total $160,000, which of the following statements is true regarding cost of goods sold (COGS)?

Question

Quizplus · Accepted Answer

To determine COGS, we need to know the cost of goods available for sale, which is the beginning inventory plus purchases. Let's assume the beginning inventory is $100,000, then the desired ending inventory would be $125,000 (25% more than $100,000). Therefore, the cost of goods available for sale would be $285,000 ($100,000 + $160,000 + $25,000). If COGS is less than purchases, it means that the company sold less than what they purchased, which could be possible if the desired ending inventory is not met. Hence, option B is correct.

Desired Ending Inventory Is 25% More Than Beginning Inventory