Question

Beginning inventory is $35 000, purchases during the year total $172 500. Net sales are $345 000. If the usual gross margin rate is 55%, what is the estimated ending inventory?

I know that the formula for this is: Ending Inventory = Cost of Goods Available for Sales - [Cost of Goods Sold - (Net Sales x (1-Gross Margin Rate))]

The answer for this is: $52 250 ($35 000+ $172 500 - ($345 000 x 0.45)]

Answer 1

Gross profit margin = (Sales - Cost of goods sold) / Sales

0.55 = ($345,000 - Cost of goods sold) / $345,000

$345,000 - Cost of goods sold = $345,000 * 0.55

$345,000 - Cost of goods sold = $189,750

Cost of goods sold = $345,000 - $189,750 = $155,250

Cost of goods sold can be also calculated by the following formula:

Cost of goods sold = Net Sales * (1 - Gross Margin Rate)

Cost of goods sold = $345,000 * (1 - 0.55)

= $345,000 * 0.45

= $155,250

To simplify for your understanding, please use this formula for calculating ending inventory

Ending Inventory = Beginning Inventory + Purchases - Cost of Goods Sold

Ending Inventory = $35,000 + $172,500 - $155,250 = $52,250