Question

Jefferson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be

Answer 1

$60000

Step-by-step explanation:

Given: Sales = $300000.

Cost of goods available for sale= $270000.

The gross profit ratio= 30%

First finding the gross profit out of total sales.

Gross profit=
`30\% * 300000`

Gross profit=
`\$ 90000`

∴ Cost of goods sold=
`Total\ sales - gross\ profit`

Cost of goods sold=
`300000-90000`

Cost of goods sold=
`\$ 210000`

Hence, cost of goods sold=
`\$ 210000`

Now, finding estimated cost of the ending inventory.

Cost of ending inventory=
`cost\ of\ goods\ available\ for\ sale - cost\ of\ goods\ sold`

⇒ Cost of ending inventory=
`\$ 270000- \$ 210000`

∴ Cost of ending inventory=
`\$ 60000`

Hence, estimated cost of the ending inventory under the gross profit method would be $60000.