During the last year, an organization had an opening inventory of $300,000, purchases of $980,000, sales of $1,850,000, and a gross margin of 40 percent. What is the closing inventory if the periodic inventory system is used?
During the last year, an organization had an opening inventory of $300,000, purchases of $980,000, sales of $1,850,000, and a gross margin of 40 percent. What is the closing inventory if the periodic inventory system is used?
To calculate the closing inventory using the periodic inventory system, use the formula: Closing Inventory = Opening Inventory + Purchases - Cost of Goods Sold. Given that the opening inventory is $300,000, purchases are $980,000, and sales are $1,850,000 with a gross margin of 40%, the Cost of Goods Sold (COGS) can be derived from sales as COGS = Sales * (1 - Gross Margin) = $1,850,000 * 0.6 = $1,110,000. Plugging these values into the formula gives: Closing Inventory = $300,000 + $980,000 - $1,110,000, resulting in a closing inventory of $170,000.
How was this calculated?
300+980-(1850×60%)
To calculate the closing inventory using the periodic inventory system, you can use the following formula: Closing Inventory = Opening Inventory + Purchases - Cost of Goods Sold Given: Opening Inventory = $300,000 Purchases = $980,000 Sales = $1,850,000 Gross Margin = 40% (which implies Cost of Goods Sold is 60% of Sales) First, calculate the Cost of Goods Sold (COGS): COGS = Sales * (1 - Gross Margin) = $1,850,000 * 0.6 = $1,110,000 Now, use the formula to find the Closing Inventory: Closing Inventory = Opening Inventory + Purchases - COGS Closing Inventory = $300,000 + $980,000 - $1,110,000 Closing Inventory = $170,000 So, the correct answer is A. $170,000.