Question

Do-It-Yourself Home Repair Shop started the accounting period with $10,000 worth of shovels in inventory. During the accounting period, it purchased $5,000 worth of shovels and sold $7,500 worth. In this scenario, what is the cost of goods sold?

a) $10,000
b) $5,000
c) $2,500
d) $7,500

Answer 1

The cost of goods sold for the Do-It-Yourself Home Repair Shop is calculated by adding the beginning inventory to purchases made and then subtracting the ending inventory. Without the ending inventory, we assume all goods sold were from the current assets, making the COGS $7,500.

Step-by-step explanation:

To calculate the cost of goods sold (COGS), you would start with the beginning inventory value, add the cost of any additional inventory purchased, and then subtract the ending inventory (if any). The ending inventory is determined by the cost of inventory remaining at the end of the period, which is not given in this scenario. However, since we know how much was sold, and assuming all inventory that was sold during the period was purchased or part of the beginning inventory, we can calculate the COGS.

Here is the step-by-step calculation:

1. Start with beginning inventory: $10,000.
2. Add purchases during the period: $5,000.
3. Total goods available for sale equals $15,000 ($10,000 + $5,000).
4. The value of goods sold is $7,500.
5. Since we do not have the ending inventory, we assume all of the goods sold were either part of the beginning inventory or purchased during the period, so the COGS is $7,500.

Therefore, the correct answer is d) $7,500.