Calculating Purchases via Gross Profit Margin and COGS Formula

Steps:

• Gross profit = 25% × $200,000 sales =$50,000
• Cost of goods sold (COGS) = $200,000 -$50,000 = $150,000
• COGS formula: $150,000 =$10,000 opening inventory + Purchases - $5,000 closing inventory
• Purchases = $150,000 -$10,000 + $5,000 =$145,000

Why B is correct:

• $145,000 matches purchases from COGS formula, where COGS = sales - gross profit (25% of sales).

Why the others are wrong:

• A: Implies COGS of $135,000, yielding 32.5% gross margin, exceeding 25%.
• C: Implies COGS of $155,000, yielding 22.5% gross margin, below 25%.
• D: Implies COGS of $165,000, yielding 17.5% gross margin, below 25%.

Final answer: B