Assume a firm has a beginning inventory of $30,000 and an ending inventory of $50,000. The result of applying the preferred formulation for calculating its inventory turnover is 3.0. However, when the sales formulation is used, the result is 5.0. The firm's gross profit is:

Question

Quizplus · Accepted Answer

To calculate the gross profit, we need to know the cost of goods sold (COGS). 
Using the preferred formulation: 
Inventory Turnover = COGS / ((Beginning Inventory + Ending Inventory) / 2) 
3.0 = COGS / ((30,000 + 50,000) / 2) 
COGS = $60,000

Using the sales formulation: 
Inventory Turnover = Sales / Ending Inventory 
5.0 = Sales / 50,000 
Sales = $250,000

Gross Profit = Sales - COGS 
Gross Profit = $250,000 - $60,000 
Gross Profit = $190,000

However, none of the answer choices match our calculation of gross profit. Therefore, there may be an error in the question or the answer choices.

Assume a Firm Has a Beginning Inventory of $30,000 and an Ending