Estimating ending inventory: gross margin method
Don Green, owner of Plains Company, is reviewing the quarterly financial statements and thinks the cost of goods sold is out of line with past years. The following historical data is available for 201 l and 2012:
| 2011 | 2012 |
Net sales | $160,000 | $200,000 |
Cost of goods sold | 70,000 | 90,000 |
At the end of the first quarter of 2013, Plains Company’s ledger had the following account balances:
Sales | $240,000 |
Purchases | 160,000 |
Beginning inventory, January 1,2013 | 60,000 |
Using the information provided, estimate the following for the first quarter of 2013:
a. Cost of goods sold. (Use average cost of goods sold percentage.)
b. Ending inventory at March 31 based on the historical cost of goods sold percentage.
c. Inventory shortage if the inventory balance as of March 31 is $100,000.
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