Question

Aliled Merchandisers was organized on May 1. Macy Company is a major customer (buyer) of Allied (seller) products.

May 3: Allied made its first and only purchase of inventory for the period on layaway for $1,000.
May 5: Allied sold $200 of the inventory purchased on May 3 to Macy Company.
May 10: Macy Company returned $100 of the inventory purchased on May 5 to Allied.
May 31: Allied's physical count of inventory showed $800 on hand.
What is the amount of Allied's cost of goods sold for the month of May?
a. $100
b. $200
c. $300
d. $400

Answer 1

Allied's cost of goods sold for May is $300, calculated by subtracting the ending inventory ($800) from the purchase amount ($1,000) and adding the returned inventory ($100).

Step-by-step explanation:

The amount of Allied's cost of goods sold for the month of May can be calculated by determining the cost of inventory that was actually sold to the customer and not returned. To calculate the cost of goods sold (COGS), you would start with the cost of inventory purchased on May 3 ($1,000), subtract the cost of inventory on hand at the end of the period ($800), and then add back any returns from customers, such as the inventory returned by Macy Company on May 10 ($100). Therefore, the COGS would be:

Purchase of Inventory - Ending Inventory + Customer Returns = COGS

$1,000 - $800 + $100 = $300

The correct answer is c. $300, which is the cost of the goods that Allied Merchandisers sold to Macy Company and was not returned.