Rich French, the owner of Rich's Fishing Supplies, is surprised at the amount of actual inventory at the end of the year. He thought there should be more inventory on hand based on the amount of sales for the year. The following information is taken from the books of Rich's Fishing Supplies:

Historically, Rich has made a 20 percent gross margin on his sales. Rich thinks there may be some problem with the inventory. Evaluate the situation based on the historical gross profit percentage.
Required
Estimate the following:

a. Gross margin in dollars.

b. Cost of goods sold in dollars.

c. Estimated ending inventory.

d. Inventory shortage.

e. Give an explanation for the shortage.

Transcribed Image Text:

Beginning inventory $200,000 Purchases for the year 400,000 Sales for the year 600,000 Inventory at the end of the year (based on actual count) 100,000