Final answer:
The Bay cafe's ending inventory is calculated by first determining the gross profit, which is sales minus cost of goods sold. The gross profit is then used to find the cost of goods available for sale. By subtracting the cost of goods sold from this figure, we deduce that the ending inventory is $5,300.
Step-by-step explanation:
The student is asking about a gross profit method of inventory valuation. To find the cafe's ending inventory using the information provided, we need to calculate the gross profit first. Since the cost of goods sold percentage is 40% and sales are $4,500, this means the cost of goods sold is 40% of sales. The gross profit would then be sales minus cost of goods sold. Given that the cost of goods sold (COGS) is $3,500:
Sales = $4,500
COGS = $3,500
Gross Profit = Sales - COGS
Therefore, Gross Profit = $4,500 - $3,500 = $1,000.
To deduce the ending inventory, we consider that the cost of goods available for sale is the sum of the beginning inventory plus purchases. Since we only have COGS and sales, we can infer that cost of goods available for sale is COGS divided by the COGS percentage (since COGS is 40% of the cost of goods available for sale).
Cost of Goods Available for Sale = COGS / 0.40 = $3,500 / 0.40 = $8,750
From the cost of goods available, we subtract the COGS to find the ending inventory:
Ending Inventory = Cost of Goods Available for Sale - COGS = $8,750 - $3,500 = $5,300.
The cafe's ending inventory is $5,300, which means option 4) $5,300 is the correct answer.