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  • 1.  INVENTORY QUESTION

    Posted 06-01-2022 10:10 AM
    Can someone help explain this question

     
     
    Question7 The following information applies to the income statement of a company:
    Gross sales
    $1,000,000
    Net sales
    900,000
    Freight-in
    10,000
    Ending inventory
    200,000
    Gross profit margin
    40%
    The company's cost of goods available for sale is
    Answer (A) is correct.
    The gross profit (gross margin) method calculates ending inventory at a given time by subtracting an estimated cost of goods sold from the sum of beginning inventory and purchases (or cost of goods manufactured). The estimated cost of goods sold equals sales minus the gross profit. The gross profit equals sales multiplied by the gross profit percentage, an amount ordinarily determined on a historical basis. Given that the gross margin percentage is 40% of net sales, cost of goods sold must be 60% of net sales, or $540,000 ($900,000 × 60%). Goods available for sale equals cost of goods sold plus ending inventory ($540,000 + $200,000 = $740,000).



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    Tayba Al-Mehdar
    Controller
    Khobar
    Saudi Arabia
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  • 2.  RE: INVENTORY QUESTION

    Posted 06-02-2022 03:31 AM
    Cost of goods sold =Cost of goods available for sale - Ending Finished goods

    It's given in the question that Gross Margin is 40%, therefore Cost of goods sold equals to 60% of Net sales (900,000* 60%)= 540,000 $
    Replacing this amount in the first equation above , you will get 740,000$ (540,000+200,000(Ending finished goods))






  • 3.  RE: INVENTORY QUESTION

    Posted 06-02-2022 04:48 AM

    Hi Ms. Taba Al-Mehdar,

    I hope you are doing well and here is my explanation,  

    First we need to understand the question what they are asking the company's cost of goods available for sale? Not Cost of goods sold 
    Cost of Goods sold formula COGS =( beginning inventory + Purchases - ending inventory) there are two methods for calculating cost of goods available for sale? we are using Gross profit method.



    Goods available for sale = Beginning inventory + Purchases



    But we don't have both beginning inventory and purchase to get Cost of goods available for sales but they given Ending inventory $ 200,000.
    we need to understand the logic behind this ending inventory before they are calculating ending inventory they already deducted Beginning inventory and purchases to get ending inventory that's why they are not given in question.

    1st Example:

    Goods available for sale = Beginning inventory + Purchases

    Goods available for sale = 18,000 + 65,000

    Goods available for sale = 83,000



    But without Beginning inventory and purchases we can't get the value of cost of goods available to sale. ?


    Calculate the Ending Inventory at Cost



    Finally, the ending inventory at cost can be estimated using the following formula:



    Ending inventory = Cost of goods available for sale - Cost of goods sold
     



    In our example, the ending inventory at cost is calculated as follows:



    Ending inventory = Cost of goods available for sale - Cost of goods sold

    Ending inventory = 83,000 - 60,000

    Ending inventory = 23,000




    As same example above we need to add 23,000 + 60,000 = 83,000 to get the value of cost of goods available to sale u just look the above 1st example. 

    As same All this thing we need to take here: 



    Cost of goods sold = Revenue x (1 - Gross profit %)

    Cost of goods sold = 900,000 x (1 - 40%)

    Cost of goods sold = 540,000





    Ending inventory = Cost of goods available for sale - Cost of goods sold
     



    In our example, the ending inventory at cost is calculated as follows:



    Ending inventory = Cost of goods available for sale - Cost of goods sold

    Ending inventory = 740,000 - 540,000

    Ending inventory = 200,000


     
    I hope u understand all this if any small error please ignore it and i am really happy to help all peoples.  

     




    ------------------------------
    [Shaik] [Sumair] [Receivable Accountant]
    [Receivable Accountant ]
    [Printech Middle East LLC]
    [Dubai]
    [United Arab emirates][shaiksumair7076@...]
    ------------------------------

     

     

    Sent from Mail for Windows

     






  • 4.  RE: INVENTORY QUESTION

    Posted 06-02-2022 04:57 AM
    I hope you better understand my previous explanation the correct Answer is A ($540,000+$200,000) = $740,000 

    Kindly feed back me!!

    ------------------------------
    [Shaik] [Sumair] [Receivable Accountant]
    [Receivable Accountant ]
    [Printech Middle East LLC]
    [Dubai]
    [United Arab emirates][shaiksumair7076@...]
    ------------------------------



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