Exhibit 8-2 The Dormer Company Uses the Gross Profit Method to Estimate

question 112

Multiple Choice

Exhibit 8-2
The Dormer Company uses the gross profit method to estimate its inventory in interim financial statements. The markup on cost is 50%. The following information is available:
-Refer to Exhibit 8-2. The estimated inventory at January 31, 2016, is

• A) $25,500
• B) $21,500
• C) $16,000
• D) $12,000

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Definitions:

Inventoriable Costs

Expenses directly tied to the production of goods, including materials and labor, capitalized as inventory until sold.

Direct Materials

Raw materials that are directly traceable to the manufacturing of products and significantly contribute to the product's cost.

Direct Labor

Direct labor costs are the wages and related expenses paid to employees who directly work on the production of goods or services.

Product Costs

Direct costs attributable to the production of goods, including direct labor, materials, and manufacturing overhead, capitalized as inventory and then expensed as sold.