Desired Ending Inventory Is 25% More Than Beginning Inventory

question 77

Multiple Choice

Desired ending inventory is 25% more than beginning inventory. If purchases total $160,000, which of the following statements is true regarding cost of goods sold (COGS) ?

• A)COGS will exceed cost of goods available for sale.
• B)COGS will be less than purchases.
• C)COGS will exceed purchases.
• D)COGS will equal $55,000.

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Definitions:

Fixed Costs

Expenses that do not change in total volume with changes in the level of business activity, such as rent or salaries.

Contribution Margin Ratio

A financial ratio that measures how much of each sale is available to cover fixed costs after variable costs have been paid.

Variable Costs

Charges that fluctuate in relation to the volume of business activities or production levels.

CVP Analysis

Cost-Volume-Profit Analysis, a tool that helps understand the relationship between costs, volume of sales, and profit.