# What is the ending inventory in the following case?A company that has operated with a 30% average gross profit ratio for a number of years had \$100,000 in sales during the first quarter of this...

What is the ending inventory in the following case?

A company that has operated with a 30% average gross profit ratio for a number of years had \$100,000 in sales during the first quarter of this year. If it began the quarter with \$18,000 of  inventory at cost and purchased \$72,000 of inventory during the quarter, its estimated ending inventory using the gross profit method is:

a. \$30,000

b. \$21,000

c. \$20,000

d. \$18,000

e. \$27,000

justaguide | College Teacher | (Level 2) Distinguished Educator

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The company operates at 30% gross profit. It had sales of \$100,000 in the first quarter of the year. The inventory at the beginning of the year is \$18000 and during the quarter inventory worth \$72000 was purchased.

The total value of the initial inventory and that purchased during the quarter is 18000 + 72000 = \$90000. The sales is \$100000. As the gross profit is 30%, the cost of the sales is \$70000.

\$90000 is the sum of the cost of inventory that was already with the company and what it bought. Of this \$70000 worth of inventory is sold.

The value of the inventory that remained with the company is \$20,000 or the right answer is option C.