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Computing Cost of Goods Available and Ending Inventory

23. The following information is available for Torino Corp. for its most recent year:

Net sales ............................................. $3,600,000
Freight-in ............................................ 90,000
Purchase discounts .................................... 50,000
Ending inventory ...................................... 240,000

The gross margin is 40 percent of net sales. What is the cost of goods available for sale?
a. $1,680,000
b. $1,920,000
c. $2,400,000
d. $2,440,000

24. The following information is available for the Neptune Company for the three months ended March 31 of this year:

Inventory, January 1 .................................. $ 450,000
Purchases ............................................. 1,700,000
Freight-in ............................................ 100,000
Sales ................................................. 2,400,000

The gross margin was estimated to be 25 percent of sales. What is the estimated inventory balance at March 31?
a. $350,000
b. $450,000
c. $562,500
d. $600,000.

Solution Preview

Before we solve these problems, let's review some basic equations:

Gross margin=Net sales-Cost of goods sold
Gross margin ratio=(Net sales-Cost of goods sold)/Net sales
Beginning inventory+Purchases+Freight-in-Purchase discounts=Cost of goods available for sales
Cost of goods ...

Solution Summary

This solution is a comprehensive explanation of the mechanics of computing cost of goods sold and its relationship to gross margin. It then illustrates how, using this information, one can compute either the cost of goods available for sale or the ending inventory.

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