In: Accounting
During the month of January, Sundown Corporation had sales of $580,000 and a cost of goods available for sale of $1,160,000. The company consistently earns a gross profit rate of 49%. Using the gross profit method, the estimated inventory at January 31 amounts to:
$295,800.
$864,200.
$284,200.
$875,800.
Sales = $580,000
Gross profit rate = 49%
Therefore,
Cost of goods sold = $580,000 x (1 - 0.49) = $295,800
And,
Cost of goods available for sale = $1,160,000
Thus,
Estimated inventory at January 31 = Cost of goods available for sale - Cost of goods sold
= $1,160,000 - $295,800
= $864,200
The correct answer is $864,200.