Calculating Purchases via COGS and Inventory Flow

Steps:

• Gross profit = 20% × $275,325 =$55,065
• Cost of goods sold (COGS) = $275,325 -$55,065 = $220,260
• Inventory change requires adding closing to COGS and subtracting opening
• Purchases = $220,260 +$55,650 - $25,450 =$250,785

Why C is correct:

• It uses the formula Purchases = COGS + closing inventory - opening inventory, where COGS = sales × (1 - gross margin).

Why the others are wrong:

• A. Subtracts inventory increase from COGS, reversing the flow for rising inventory.
• B. Applies incorrect rate to sales, like 74% for COGS instead of 80%.
• D. Treats 20% as markup on cost, so COGS = sales / 1.2.

Final answer: C