You know these facts about a company’s prior calendar year: • Beginning inventory: 100 units at $10 each • Ending inventory: 50 units at $9 each • Inventory purchased for resale during the year: $2,000
What can you calculate using this information?
Select all that apply.
Gross sales
Net profit
Contribution margin
Cost of goods sold
None of the above
The Correct Answer and Explanation is :
Based on the provided information, we can calculate the Cost of Goods Sold (COGS). COGS represents the direct costs associated with producing or purchasing the goods that a company sells during a specific period. It is a crucial metric for determining a company’s gross profit and assessing its financial performance.
Given Data:
- Beginning Inventory: 100 units at $10 each
- Ending Inventory: 50 units at $9 each
- Inventory Purchased: $2,000
Calculation of COGS:
COGS can be calculated using the formula:
[ \text{COGS} = (\text{Beginning Inventory} + \text{Purchases}) – \text{Ending Inventory} ]
- Calculate the Total Cost of Beginning Inventory: [ 100 \, \text{units} \times \$10/\text{unit} = \$1,000 ]
- Add the Purchases Made During the Year: [ \$1,000 + \$2,000 = \$3,000 ]
- Calculate the Total Cost of Ending Inventory: [ 50 \, \text{units} \times \$9/\text{unit} = \$450 ]
- Determine the COGS: [ \$3,000 – \$450 = \$2,550 ]
Therefore, the Cost of Goods Sold (COGS) for the year is $2,550.
Explanation:
COGS is a vital metric for businesses as it directly impacts gross profit. By subtracting COGS from total sales revenue, a company can determine its gross profit, which is essential for assessing profitability and making informed business decisions.
While the provided information allows for the calculation of COGS, it does not provide sufficient data to determine other financial metrics such as gross sales, net profit, or contribution margin. To calculate gross sales, net profit, or contribution margin, additional information is required, such as total sales revenue, operating expenses, and other costs.
In summary, with the given data, we can accurately calculate the Cost of Goods Sold (COGS) for the year, which is a fundamental component in evaluating a company’s financial health.