Question

g A physical inventory taken on December 31, 2020, resulted in an ending inventory of $1,150,000. Historically, Jensen's gross margin on sales has remained constant at 25%. Jensen suspects that an unusual amount of inventory may have been damaged and disposed of without appropriate tracking. At December 31, 2020, what is the estimated cost of missing inventory

Answer 1

Answer: $350,000

Step-by-step explanation:

The Cost of Goods sold according to the Gross margin on sales is:

COGS = Revenue - (Gross margin * Revenue)

= 6,400,000 - (25% * 6,400,000)

= $4,800,000

The COGS according to the income statement formula:

= Opening inventory + Purchases - Closing inventory

= 1,300,000 + 5,000,000 - 1,150,000

= $5,150,000

The difference is the missing inventory

Difference = 5,150,000 - 4,800,000

= $350,000