Question

Baylor Inc. has a gross profit rate of 45%. During the period, the company had net sales of $400,000 and goods available for sale of $260,000. Beginning inventory was $35,000. Compute the dollar amount of the ending inventory.

Answer 1

To find the ending inventory, we first need to calculate the Cost of Goods Sold (COGS) using the gross profit rate. Then, we can use the COGS, beginning inventory, and goods available for sale to calculate the ending inventory.

Step-by-step explanation:

To calculate the ending inventory, we need to find the Cost of Goods Sold (COGS) first. COGS is calculated using the formula:

COGS = Beginning Inventory + Purchases - Ending Inventory.

Given that the gross profit rate is 45%, we can calculate the COGS as follows:

Gross Profit = Net Sales - COGS.

45% of Net Sales = Gross Profit. Therefore, COGS = Net Sales - Gross Profit.

Substituting the given values:

COGS = $400,000 - (45% x $400,000) = $220,000.

Now, we can calculate the Ending Inventory:

Ending Inventory = Beginning Inventory + Purchases - COGS.

Given that the Beginning Inventory is $35,000 and Goods Available for Sale is $260,000, we can calculate:

Ending Inventory = $35,000 + $260,000 - $220,000 = $75,000.