BUSINESS HIGH SCHOOL

Big Box Store has operated with a 30% average gross profit ratio for a number of years. It had $100,000 in sales during the second quarter of this year. If it began the quarter with $18,000 of inventory at cost and purchased $72,000 of inventory during the quarter, its estimated ending inventory by the gross profit method is:__________a) $30,000.
b) $21,000.
c) $20,000.
d) $18,000.
e) $27,000.

Answers

Answer 1
Answer:

Answer:

c) $20,000.

Explanation:

The computation of the estimated ending inventory is shown below:

We know that

Cost of goods sold = Beginning inventory + purchase made - ending inventory

And, the

Sales - gross profit = Cost of goods sold

$100,000 - $100,000 × 30% = Cost of goods sold

So, cost of goods sold would be

= $100,000 - $30,000

= $70,000

Now the ending inventory would be

$70,000 = $18,000 + $72,000 - ending inventory

$70,000 = $90,000  - ending inventory

So, the ending inventory would be

= $90,000 - $70,000

= $20,000
Answer 2
Answer:

Final answer:

Based on 30% gross profit ratio, the estimated end inventory for the Big Box Store for the second quarter is $20,000, after accounting for cost of goods sold from the total available inventory.

Explanation:

The Big Box Store operates at a 30% Gross Profit Margin, implying 70% of the sales are accounted as Cost of Goods Sold (COGS). Therefore, the COGS for the second quarter would be $100,000*0.7 = $70,000.

The initial inventory at the beginning of the quarter was $18,000 and $72,000 amount of inventory was purchased during the quarter. So total available inventory is $18,000 + $72,000 = $90,000.

If we subtract the COGS from total available inventory that gives us the estimated ending inventory. That is $90,000 - $70,000 = $20,000. Therefore the estimated ending inventory from Box Store will be $20,000.

Learn more about Inventory Estimation here:

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