Question

For the year, your company's gross profit is $250,000, sales are $320,000 and ending inventory is $75,000. If net purchases are $100,000, then COGS is:

A. $70,000
B. $95,000
C. $110,000
D. $130,000

Answer 1

To calculate the Cost of Goods Sold (COGS), you take the beginning inventory ($70,000) plus net purchases ($100,000), and subtract the ending inventory ($75,000), which gives you a COGS of $95,000 for the company. Therefore, the correct option is B.

Step-by-step explanation:

The calculation of Cost of Goods Sold (COGS) is essential to determine a company's gross profit. COGS can be calculated with the following formula:

• Beginning Inventory
• Plus Net Purchases
• Minus Ending Inventory
• Equals COGS

If a company's gross profit is $250,000 and sales are $320,000, we can calculate the beginning inventory by rearranging the gross profit formula:

Gross Profit = Sales – COGS

$250,000 = $320,000 – COGS

COGS = $320,000 – $250,000

COGS = $70,000 (This would be the beginning inventory)

Now we can calculate the actual COGS by considering net purchases and ending inventory:

COGS = Beginning Inventory + Net Purchases – Ending Inventory

COGS = $70,000 + $100,000 – $75,000

COGS = $95,000

The correct answer to the question is B. $95,000.