Question

Western Company recently lost its entire inventory in an earthquake. The following information is available from its accounting records: Beginning inventory: $5,000; purchases: $18,000; net sales: $40,000. The company's average gross profit percentage is 40%. Using the gross profit method, a reasonable estimate of cost of goods sold for this past period would be:______

Answer 1

$24,000

Step-by-step explanation:

Cost of goods sold = Net sales - gross profit.

As net sales = $40,000

Average gross profit = 40%

Thus, gross profit in dollars = $40,000
`*` 40% = $16,000

Thus, cost of goods sold = $40,000 - $16,000 = $24,000

Sales represent the total revenue earned and cost represent the entire value of manufacturing it.

It is $24,000.