Question

You are given the following table from the Mia Retail Store:

Beginning inventory$16,000
Purchases$65,000
Goods available for sale$81,000
Sales$90,000
The company's historical gross profit percentage has averaged 25% over the last 3 years. Based on the gross profit method the cost price of the ending inventory is equal to:

Answer 1

Using the gross profit method with Mia Retail Store's historical gross profit percentage of 25%, the cost price of the ending inventory is calculated to be $13,500 after estimating the cost of goods sold from total sales and deducting it from goods available for sale.

Step-by-step explanation:

To calculate the cost price of the ending inventory using the gross profit method, we need to estimate the cost of goods sold (COGS) first. Given Mia Retail Store's historical gross profit percentage of 25%, we can determine its gross profit in dollars by multiplying this percentage by the total sales. Subtracting the estimated gross profit from the sales will provide us with the estimated COGS. Once we have the estimated COGS, we subtract it from the goods available for sale to find the cost price of the ending inventory.

• Gross Profit in dollars = Sales * Gross Profit Percentage
• Estimated COGS = Sales - Gross Profit in dollars
• Ending Inventory = Goods Available for Sale - Estimated COGS

Let's do the math:

• Gross Profit in dollars = $90,000 * 25% = $22,500

• Estimated COGS = $90,000 - $22,500 = $67,500
• Ending Inventory = $81,000 - $67,500 = $13,500

Therefore, based on the gross profit method, the cost price of the ending inventory is $13,500.