Question

Jefferson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be

Answer 1

Answer:

$60000

Explanation:

Given: Sales = $300000.

           Cost of goods available for sale= $270000.

           The gross profit ratio= 30%

First finding the gross profit out of total sales.

Gross profit= $30\% \times 300000$

Gross profit= $\ 90000$

∴ Cost of goods sold= $Total\ sales - gross\ profit$

Cost of goods sold= $300000-90000$

Cost of goods sold=  $\ 210000$

Hence, cost of goods sold= $\ 210000$

Now, finding estimated cost of the ending inventory.

Cost of ending inventory= $cost\ of\ goods\ available\ for\ sale - cost\ of\ goods\ sold$

⇒ Cost of ending inventory=  $\ 270000- \ 210000$

∴ Cost of ending inventory=  $\ 60000$

Hence, estimated cost of the ending inventory under the gross profit method would be $60000.