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Estimating Inventory Shortgages Using Historical Amounts

Mark Knight, owner of Knight 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 2009 and 2010:

2009: 2010:
Net Sales $140,000 $200,000
Cost of goods sold 60,000 90,000

At the end of the first quarter of 2011, Knight Company's ledger had the following account balances:

Sales $260,000
Purchases 160,000
beginning inventory, January 1, 2011 70,000

Please help with the required: **Estimate first quarter of 2011**
A. Cost of goods sold (Use average cost of goods sold percentage for 2009 and 2010)

B. Ending inventory at March 31 based on historical cost of goods sold percentage.

C. Inventory shortage if the inventory balance as of March 31 is $100,000.

Help. thank you

Solution Preview

a. The cost of goods sold average percentages for 2009 and 2010 are:

2009 2010
Cost of Goods Sold $ 60,000 $ 90,000
Net Sales ...

Solution Summary

This solution illustrates how to estimate a current year inventory shortage using historical amounts.