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# Estimating ending inventory

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Estimating Ending Inventory. See attached file for full problem description.

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 2004 and 2005
2004 2005
Net Sales \$160,000 \$200,000
Cost of good sold 70,000 90,000
At the end of the first quarter of 2006, Plains Company's ledger had the following account balances:
Sales \$240,000
Purchases 160,000
Beginning Inventory, 01/02/06 \$60,000
Required
Using the information provided, estimate the following for the first quarter of 2006:
a. Cost of good sold (Use average cost of goods sold %)
b. Ending Inventory at 03/31 based on historical cost of goods sold percentage
c. Inventory shortage if inventory balance as of 03/31 is \$100,000
PROBLEM 6-25A Name: _______________

Lexington Company

2004 2005 Total

Net Sales
Cost of Goods Sold
Gross Margin

Gross Margin %
Cost of Goods Sold %

a. Computation of Gross Margin:

Sales
Less: Sales Discounts
Net Sales
x Gross Margin %
Gross Margin

b. Computation of Ending Inventory:

Beginning Inventory
Plus: Purchases
Plus: Transportation-In
Goods Available for Sale
Less: Cost of Goods Sold

Ending Inventory

#### Solution Preview

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 2004 and 2005
2004 2005
Net Sales \$160,000 \$200,000
Cost of good sold 70,000 90,000
At the end of the first quarter of 2006, Plains Company's ledger had the following account balances:
Sales \$240,000
Purchases 160,000
Beginning ...

#### Solution Summary

The solution explains how to calculate the ending inventory using the gross margin method

\$2.49