Question

On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available: Beginning inventory, January 1: $4,700 Net sales: $76,000 Net purchases: $74,000 The company's gross margin ratio is 20%. Using the gross profit method, the estimated ending inventory value would be:

Answer 1

The estimated ending inventory value using the gross profit method is $17,900. This value is calculated by determining the estimated cost of goods sold (COGS) using net sales and the gross margin ratio, and then adjusting for beginning inventory and net purchases.

Step-by-step explanation:

To estimate the ending inventory value using the gross profit method, we first calculate the estimated cost of goods sold (COGS). We use the gross margin ratio and net sales to estimate COGS. A company has ending inventory that needs to be estimated, with the following information: Beginning inventory at $4,700, Net sales at $76,000, and Net purchases at $74,000. The company's gross margin ratio is 20%, which means the gross profit is 20% of net sales.

First, determine the gross profit by multiplying the net sales by the gross margin ratio:
$76,000 (Net sales) x 20% (Gross margin ratio) = $15,200 (Gross profit).

Then, subtract the gross profit from net sales to estimate the COGS:
$76,000 (Net sales) - $15,200 (Gross profit) = $60,800 (Estimated COGS).

Finally, to estimate ending inventory, add the beginning inventory to net purchases to find the cost of goods available for sale, and then subtract the estimated COGS:
$4,700 (Beginning inventory) + $74,000 (Net purchases) = $78,700 (Goods available for sale).
$78,700 (Goods available for sale) - $60,800 (Estimated COGS) = $17,900 (Estimated ending inventory value).

Answer 2

The estimated ending inventory by the gross profit method is $19,900

Step-by-step explanation:

In order to calculate the estimated ending inventory value we would have to calculate first the following:

Step 1- Calculating Gross profit:

Gross profit ratio = Gross profit/ Sales

20% = Gross profit/ $76,000

Gross profit = $76,000 x 20%

Gross profit = $76,000 x 20%

Gross profit = $15,200

Step 2- Calculating Cost of Goods sold (COGS):

Sales - COGS = Gross profit

$76,000 - COGS = $15,200

COGS = $76,000 - $15,200

COGS = $60,800

Step 3- Calculating Ending Inventory:

COGS = Beginning inventory + Inventory purchases - Ending inventory

$60,800 = $4,700 + $76,000 - Ending inventory

$60,800 = $80,700 - Ending inventory

Ending inventory = $80,700 -$60,800

Ending inventory = $19,900

Therefore, the estimated ending inventory by the gross profit method is $19,900.