Question

The Jackson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be:

1) 180,000
2) impossible to determine from the information provided
3) 30,000
4) 90,000
5) 60,000

Answer 1

Using the gross profit ratio of 30%, we calculate the gross profit from sales, deduce the cost of goods sold, and subtract it from the cost of goods available for sale to arrive at the estimated ending inventory of $60,000 for the Jackson Company.

Step-by-step explanation:

The subject of this question involves calculating inventory estimates using the gross profit method in a business context. We are given that the Jackson Company has a gross profit ratio of 30%, sales of $300,000, and cost of goods available for sale of $270,000.

With a gross profit ratio of 30%, we expect that the gross profit is 30% of sales, which would be $90,000 (30% of $300,000). The cost of goods sold would then be sales minus gross profit, which is $300,000 - $90,000 = $210,000. Finally, to find the estimated ending inventory, we subtract the cost of goods sold from the cost of goods available for sale. That would be $270,000 - $210,000, equaling $60,000.