For the last several years Conway Corporation has operated with a gross profit rate of 40%. On 1 January of the current year the company had on hand inventory with a cost of $600,000. Purchases of inventory during January amounted to $150,000, and sales for the month were $360,000. Using the gross profit method, what is the estimated inventory at 31 January?

Question

Quizplus · Accepted Answer

Step 1: Calculate the Cost of Goods Sold (COGS) for the month of January by using the gross profit rate formula:

Gross profit rate = Gross profit / Net sales

40% = Gross profit / $360,000

Gross profit = $360,000 x 40% = $144,000

COGS = Net sales - Gross profit 
COGS = $360,000 - $144,000 = $216,000

Step 2: Calculate the estimated ending inventory by using the gross profit method formula:

Ending inventory = Beginning inventory + Purchases - COGS

Ending inventory = $600,000 + $150,000 - $216,000 = $534,000

Therefore, the estimated inventory at 31 January is $534,000, which is option D.

For the Last Several Years Conway Corporation Has Operated with a Gross