Donnie Mills, the owner of Donnie’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 Donnie’s Fishing Supplies:

Beginning inventory ....................$250,000

Purchases for the year .................. 500,000

Sales for the year .................... 850,000

Inventory at the end of the year (based on actual count) .... 40,000

Historically, Donnie has made a 20 percent gross margin on his sales. Donnie 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.