Question

The following inventory-related information is for Magily Company. Year 1 Year 2 Sales

The following inventory-related information is for Magily Company.
 
                                                                                      Year 1                          Year 2
Sales                                                                         $600,000                     $700,000
Inventory purchases                                                $420,000                     $500,000
Beginning inventory                                                 $100,000                           ?????
Gross profit percentage (Gross profit ÷ Sales)             40%                             35%
 
Compute ending inventory for Year 1 and for Year 2. Write the dollar amount of each answer. (Do not write a dollar sign).
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Answer #1

Cost of goods sold percentage = 1 - Gross profit percentage

Year 1 Cost of goods sold = Sales * (1 - Gross profit percentage)

= $600,000 * (1 - 0.4)

= $360,000

Year 1 Ending inventory = Beginning inventory + Purchases - Cost of goods sold

= $100,000 + $420,000 - $360,000

= $160,000

Year 1 Ending inventory = Year 2 Beginning inventory

Year 2 Cost of goods sold = Sales * (1 - Gross profit percentage)

= $700,000 * (1 - 0.35)

= $455,000

Year 2 Ending inventory = Beginning inventory + Purchases - Cost of goods sold

= $160,000 + $500,000 - $455,000

= $205,000

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