Question

How can the cost of goods sold for a merchandising company be computed directly?

1) By subtracting the beginning inventory from the ending inventory
2) By adding the beginning inventory to the purchases and subtracting the ending inventory
3) By multiplying the average inventory by the cost of goods sold
4) By dividing the net sales by the gross profit percentage

Answer 1

The cost of goods sold for a merchandising company is computed by adding the beginning inventory to the purchases and subtracting the ending inventory, ensuring an accurate total cost of goods sold during the period. The correct option is 2.

Step-by-step explanation:

The cost of goods sold (COGS) for a merchandising company can be computed directly by adding the beginning inventory to the purchases and then subtracting the ending inventory. This calculation gives us the total cost of merchandise that was sold during the period.

To compute the COGS, one would follow these steps:

1. Determine the beginning inventory cost at the start of the period.
2. Add the cost of any purchases made during the period to the beginning inventory.
3. Subtract the ending inventory cost at the end of the period from the total of the beginning inventory plus purchases.

This method provides the total cost of all goods that were actually sold to customers during the period. It's essential to have accurate inventory counts to ensure the COGS is calculated correctly.

hence, Option 2 is correct.