Question

Miller, Inc. estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on cost is 25%. The following account balances are available: Inventory, March 1 $220,000 Purchases 172,000 Purchase returns 8,000 Sales during March 300,000 The estimate of the cost of inventory at March 31 would be

Answer 1

$144,000

Step-by-step explanation:

The computation of the estimation of the inventory cost at the ending is shown below:

As we know that

Ending inventory = Opening inventory + net purchase - cost of goods sold

= opening inventory + purchase - purchase return - cost of goods sold

= $220,000 + $172,000 - $8,000 - ($300,000 ÷ 125%)

= $220,000 + $164,000 - $240,000

= $144,000

We simply applied the above formula to determine the ending inventory cost