The Doll Company estimates the cost of its physical inventory at March 31, 2012

Question

The Doll Company estimates the cost of its physical inventory at March 31, 2012 for use in an interim financial statement. The rate of markup on sales is 20%. The following account balances are available:

Inventory March 1, 2012

    $160,000

Purchases during March

        86,000

Purchase returns

           4,000

Sales during March

      140,000

         REQUIRED:

Estimate the cost of inventory at March 31.

Inventory March 1, 2012

    $160,000

Purchases during March

        86,000

Purchase returns

           4,000

Sales during March

      140,000

Explanation / Answer

The cost of inventory at March 31 was $ 130,000

Workings:

Markup on sales = 140,000 / 100 x 20 = $ 28,000

Hence, cost of goods sold = $ 140,000- $ 28,000 = $ 112,000

Cost of goods sold = Beginning Inventory + Net Purchases - Ending Inventory

Or Ending Inventory = 160,000 + 82,000 - 112,000 = $ 130,000

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