E. Preslay Company prepares monthly financial statements and uses the gross profit method to estimate ending inventories. Historically, the company has had a 40% gross profit rate. During June, net sales amounted to $200,000; the beginning inventory on June 1 was $60,000; and the cost of goods purchased during June amounted to $90,000. The estimated cost of E. Preslay Company's inventory on June 30 is

$30,000

Explanation:

The computation of the estimated cost of ending inventory is shown below:

As we know that

Cost of goods sold = Beginning inventory + Cost of goods purchased - ending inventory                    

where,

Cost of goods sold is

=  Net Sales - gross profit

= $200,000  - $200,000 × 40%

= $200,000 - $80,000

= $120,000

Beginning inventory is $60,000

Cost of goods purchased is $90,000

So, the ending inventory is

$120,000 = $60,000 + $90,000 - ending inventory

Hence, the ending inventory is $30,000

The cost of goods sold refers to the cost which is directly related to the goods sold or created i.e direct material, direct labor, etc

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