Question

On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available:

Beginning inventory, January 1: $4,000
Net sales: $80,000
Net purchases: $78,000

The company's gross margin ratio is 25%. Using the gross profit method, the cost of goods sold would be:

Answer 1

Ans.	Firstly, we need to calculate the value of gross profit.
	Gross profit =   Net sales * Gross profit margin ratio
	$80,000 * 25%
	$20,000
	*Now we can calculate the cost of goods sold by using the following formula:
	Gross profit   = Net sales - Cost of goods sold
	$20,000 = $80,000 - Cost of goods sold
	Cost of goods sold = $80,000 - $20,000
	Cost of goods sold = $60,000
	*Cost of goods sold is the difference between net sales and gross profit.