Question

For the year, your company's sales are $305,000, the gross profit is $250,000, and the ending inventory is $75,000. If net purchases are $100,000, the beginning inventory must have been:

a. $30,000

b. $55,000

c. $85,000

d. $120,000

Answer 1

To calculate the beginning inventory, we start with the COGS, subtract net purchases from it, and then add the ending inventory. The calculation leads to a beginning inventory of $30,000.

Step-by-step explanation:

The beginning inventory of the company can be calculated by rearranging the formula Cost of Goods Sold (COGS) = Opening Inventory + Purchases - Ending Inventory.

Given the gross profit of $250,000 and sales of $305,000, we can calculate COGS as $305,000 - $250,000, which gives us $55,000. Now, using the formula, $55,000 (COGS) = Beginning Inventory + $100,000 (Purchases) - $75,000 (Ending Inventory).

Solving for the Beginning Inventory, we subtract Purchases and add Ending Inventory to both sides of the equation: Beginning Inventory = $55,000 - $100,000 + $75,000, arriving at the final answer of $30,000 for the Beginning Inventory.