The following information is available for Sweden Company for its most recent year:

Net sales $1,800,000

Freight-in 45,000

Purchase discounts 25,000

Ending inventory 120,000

The gross margin is 40% of net sales. What is the cost of goods available for sale?

A $1,200,000

B $1,220,000

C $960,000

D $840,000

A $1,200,000

Explanation:

The correct answer is D.

the gross margin equals 40% of net sales = 40% * 1,800,000 = 720,000

Cost of goods sold will therefore be 60% of net sales;

Cost of goods sold = (60% * 1,800,000) = 1,080,000.

Cost of goods available for sale = cost of goods sold + the cost of ending inventory.

Cost of goods available for sale = 1,080,000+120,000 = $1,200,000