Question

In: Accounting

During the month of January, Sundown Corporation had sales of $580,000 and a cost of goods...

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.

Solutions

Expert Solution

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.


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