Answered: On Dec 31, 2011, Yellow HArdware has…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter8: Inventories: Special Valuation Issues

Section: Chapter Questions

Problem 4MC

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Question

On Dec 31, 2011, Yellow HArdware has inventory of $25,000. The owner wants to increase inventory on hand to $35,000 on Dec 31 2012. If net sales for 2012 are expected to be 150,000 and the gross profit is expected to be 35% of net sales, compute the net cost of merchandise the owner should expect to purchase during 2012.

Expert Solution

Step 1

The cost of goods sold refer to the cost of producing the goods which are sold during the year. The amount of purchases is calculated by deducting beginning inventory from the cost of goods sold and adding ending inventory to it.

Step 2

Net sales: $150,000

Gross profit: ($150,000×35%) = $52,500

Cost of goods sold is calculated as follows:

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