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Pioneer’s annual inventory count took place on 6 January 20X6. The value of inventory on
this date was $32,780. During the period from 31 December 20X5 to 6 January 20X6, the
following events occurred:
The value of inventory at 31 December 20X5 was $34,600.
What is the gross margin of Pioneer?
How to calculate cost of sales here? i did like
cost of sales =2380 but its wrong . can you show me how to calculate cost of sales here ?
The inventory at 31 December 20X5 was $34,600. However they didn’t count it until 6 days laters and during that period the inventory will have changed because they bought some and sold some.
The bought 4,200 and this would therefore have increased the inventory to 34,600 + 4,200 = 38,800.
However the inventory on 6 January was only 32,780, and so they had sold some with a cost of 38,800 – 32,780 = $6,020.
This must be the cost of the goods sold during the 6 days. The sales value of these goods was $8,600 and so the profit on them was 8,600 – 6,020 = $2,580 and the gross margin was therefore 2,580/8,600 = 30%