Question

On January 1, JKR Shop had \(225,000 of inventory at cost. In the first quarter of the year, it purchased \)795,000 of merchandise, returned \(11,550, and paid freight charges of \)18,800 on purchased merchandise, terms FOB shipping point. The company’s gross profit averages 30%, and the store had $1,000,000 of net sales (at retail) in the first quarter of the year. Use the gross profit method to estimate its cost of inventory at the end of the first quarter.

Short answer

Ending Inventory at the cost of$327,250.

Step-by-step solution

Definition of Freight Charges

The amount paid by the business entity for shifting the goods from the manufacturing point to the market where they can be sold to the customer is considered freight charges.

Ending Inventory Under Gross Profit Method

Particular	Amount $
Total cost of goods available for sale	$1,027,250
Less: Cost of goods sold	(700,000)
Ending Inventory	$327,250