Based on the following data, what is the gross profit for the company?
Sales $1,000,000
Net purchases of raw materials 600,000
Cost of goods manufactured 800,000
Marketing and administrative expenses 250,000
Indirect manufacturing costs 500,000
Beginning Inventory Ending Inventory
——————- —————-
Work in process $500,000 $400,000
Finished goods 100,000 500,000
A.
$200,000
B.
$400,000
C.
$600,000
D.
$900,000
Answer is C
Cost of goods sold is beginning finished goods plus cost of goods manufactured, less ending finished goods:
$100,000 + $800,000 – $500,000 = $400,000
Gross profit is sales less cost of goods sold:
$1,000,000 – $400,000 = $600,000
How is this possible?!
Am I missing something really simple? I thought Cost of Goods Sold was BI+Purchases-EI.
I figured it would be 100,000 + 600,000 – 500,000=200,000
And then Gross Profit would be 1,000,000-200,000=800,000
.