During the last year, an organization had an opening inventory of $300,000, purchases of $980,000, sales of $1,850,000, and a gross margin of 40 percent. What is the closing inventory if the periodic inventory system is used?
A) $170,000
B) $280,000
C) $300,000
D) $540,000

Question

Quizplus · Accepted Answer

The gross margin is 40%, so the cost of goods sold (COGS) is 60% of sales. COGS = 60% of $1,850,000 = $1,110,000. Using the periodic inventory system: Opening Inventory + Purchases - COGS = Closing Inventory. $300,000 + $980,000 - $1,110,000 = $170,000.

During the Last Year, an Organization Had an Opening Inventory