Question

Over the last few years, Mohawk Industries has operated with a gross profit rate of 35%. On January 1, 2012, the company had inventory on hand with a cost of $750,000. Purchases of merchandise during January amounted to $215,000, and sales for the month were $480,000. Using the gross profit method, what is the estimated inventory at January 31

Answer 1

$653,000

Step-by-step explanation:

When using the gross profit approach, the first step is to calculate the cost of goods available for sale

cost of goods available for sale is Beginning stock for plus purchases

For Mohawk industries

Beginning stock is $750,000

purchases in the month $215,000

Goods available for sales $965,000

If the sales were $480,000

gross profits 35% of sales

The gross profits was 35/100 x 480,000

= $168,000

The cost of goods sold was

=$480,000 -$168,000

=$312,000

Costs of goods available for sale is $965,000

The costs of goods sold are $312,000

estimated ending inventory is $965,000 -$312,000

=$653,000