On June 30 a company needed to estimate its ending inventory to prepare its second quarter financial statements. The following information is available: Beginning inventory, April 1: $6,000
Net sales: $70,000
Net purchases: $36,000
The company's gross margin ratio is 12%. Using the gross profit method, the cost of goods sold would be:
A)$8,400
B)$34,000
C)$61,600
D)$40,000
E)$35,200

Question

Quizplus · Accepted Answer

The gross profit method estimates the cost of goods sold by applying the gross margin ratio to net sales. The gross margin is 12%, so the cost of goods sold is 88% of net sales. Therefore, COGS = 0.88 * $70,000 = $61,600.

On June 30 a Company Needed to Estimate Its Ending