Question

Crankberry Corp. wants to estimate ending inventory as of March 31, 2019. The cost of inventory on hand as of January 1, 2019 was $75,000. The cost of purchases from January 1st through March 31st is $161,400. Sales, which are made at 25% above cost, totaled $225,000 through March 31st. Estimate the cost of Crankberry's ending inventory as of March 31st using the gross profit method.

Answer 1

Answer:

$56400

Explanation:

The value of ending inventory is $56400 as we sales are 25% above the actual cost of goods sold therefore first we find Cost of goods sold.

Gross profit = Sales - Cost of Goods Sold

G.P = $225000 - CGS

0.25% of CGS = $225000 - CGS

0.25 CGS + 1 CGS = $225000

1.25 CGS = $225000

CGS = $225000/1.25

CGS = $180000

We know that

Opening inventory                        $75000

Add purchases                              $161400

Total goods Available for sale      $236400

Less: Cost of Good Sold                $ 180000

Ending inventory =                        $56400