Question

Kesler, Inc. estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on cost is 25%. The following account balances are available: Inventory, March 1 $440,000 Purchases 344,000 Purchase returns 16,000 Sales during March 600,000 The estimate of the cost of inventory at March 31 would be:

Answer 1

Answer:

$ 288,000

Explanation:

Data provided:

The rate of markup on the cost = 25%

Account balance available in the inventory =  $ 440,000

Purchases = $ 344,000

Purchase returns =  $ 16,000

Therefore, Net purchase = Purchases - Purchase returns

= $ 344,000 - $ 16,000 = $ 328,000

Total sales during March = 600,000

Thus,

the cost of the products = 600,000 / 1.25 = $ 480,000

Hence,

cost of inventory = Account balance available in the inventory + Net purchase - cost of sold products

or

cost of inventory =  $ 440,000 + $ 328,000 - $ 480,000 = $ 288,000