Question

Presented below is information related to Pharoah Corporation for the current year. Beginning inventory $ 590,300 Purchases 1,472,500 Total goods available for sale $2,062,800 Sales revenue 2,455,000 Compute the ending inventory, assuming that (a) gross profit is 46% of sales, (b) gross profit is 60% of cost, (c) gross profit is 36% of sales, and (d) gross profit is 25% of cost.

Answer 1

a. $948,888

b. $773,550

c. $1,237,680

d. $412,560

Step-by-step explanation:

The Ending Inventory is calculated using the missing figure approach or the Gross Margin technique.

that is,

Ending Inventory = Cost of Goods Available for Sale - Cost of Sales

thus,

This can be clearly done by writing up a Trading Account as shown below for each scenario.

also remember,

Cost + Profit = Sales

so for those based on cost use this formula.

for example : gross profit is 60% of cost

will be : 100 % + 60 % = 160 %

Part a

Pharoah Corporation

Trading Account for the Year

Sales $2,062,800

Less Cost of Sales

Beginning Inventory $ 590,300

Add Purchases $1,472,500

Goods Available for Sale $2,062,800

Less Ending Inventory (Balancing amount) ($948,888) ($1,113,912)

Gross Profit $948,888

Part b

Pharoah Corporation

Trading Account for the Year

Sales $2,062,800

Less Cost of Sales

Beginning Inventory $ 590,300

Add Purchases $1,472,500

Goods Available for Sale $2,062,800

Less Ending Inventory (Balancing amount) ($773,550) ($1,289,250)

Gross Profit $773,550

Part c

Pharoah Corporation

Trading Account for the Year

Sales $2,062,800

Less Cost of Sales

Beginning Inventory $ 590,300

Add Purchases $1,472,500

Goods Available for Sale $2,062,800

Less Ending Inventory (Balancing amount) ($1,237,680) ($825,120)

Gross Profit $1,237,680

Part d

Pharoah Corporation

Trading Account for the Year

Sales $2,062,800

Less Cost of Sales

Beginning Inventory $ 590,300

Add Purchases $1,472,500

Goods Available for Sale $2,062,800

Less Ending Inventory (Balancing amount) ($948,888) ($1,113,912)

Gross Profit $948,888

Part a

Pharoah Corporation

Trading Account for the Year

Sales $2,062,800

Less Cost of Sales

Beginning Inventory $ 590,300

Add Purchases $1,472,500

Goods Available for Sale $2,062,800

Less Ending Inventory (Balancing amount) ($412,560) ($1,650,240)

Gross Profit $412,560