During the last year, an organization had an opening inventory of $300,000, purchases of $980,000, sales of $1,850,000, and a gross margin of 40 percent. What is the closing inventory if the periodic inventory system is used?
To calculate the closing inventory using the periodic inventory system, you can use the following formula:
Closing Inventory = Opening Inventory + Purchases - Cost of Goods Sold
Given:
Opening Inventory = $300,000
Purchases = $980,000
Sales = $1,850,000
Gross Margin = 40% (which implies Cost of Goods Sold is 60% of Sales)
First, calculate the Cost of Goods Sold (COGS):
COGS = Sales * (1 - Gross Margin) = $1,850,000 * 0.6 = $1,110,000
Now, use the formula to find the Closing Inventory:
Closing Inventory = Opening Inventory + Purchases - COGS
Closing Inventory = $300,000 + $980,000 - $1,110,000
Closing Inventory = $170,000
So, the correct answer is A. $170,000.
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