How is the estimated Cost of Goods Sold calculated based on sales and gross profit percentage?

To calculate the estimated Cost of Goods Sold (COGS) based on sales and gross profit percentage, the correct approach is to consider that the gross profit ratio is derived from sales. The gross profit percentage represents the portion of sales that exceeds the cost of goods sold. When we say that gross profit is a percentage of sales, we are essentially looking at the relationship between sales, gross profit, and COGS.

The formula for gross profit can be expressed as:

Gross Profit = Sales - COGS

Given that gross profit percentage is defined as:

Gross Profit % = Gross Profit / Sales

This means that if you want to express COGS in terms of sales and gross profit percentage, you can rearrange these formulas.

Specifically, if we take 100% of sales and subtract the gross profit percentage (expressed as a decimal), what remains is the fraction of sales that corresponds to the cost of goods sold. Therefore, we can express COGS as:

COGS = Sales - Gross Profit
= Sales - (Gross Profit % * Sales)
= Sales * (1 - Gross Profit %)

This provides the logical basis for the formula given as the correct choice. Thus, using this understanding, the