Exercise 9-12 Mark Price Company uses the gross profit method to estimate invent
ID: 2458744 • Letter: E
Question
Exercise 9-12
Mark Price Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.
(a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales.
(b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost. (Round percentage of sales to 2 decimal places, e.g. 78.74% and final answer to 0 decimal places, e.g. 6,225.)
Explanation / Answer
(a).
Inventory , May 1 = $166500
Net Purchases at Cost = $655700
Less Purchase Discount = $12530
$643170
Freight Cost on Purchases = $30700
Cost of goods available for sales = $840370
Less Estimated cost of goods sold
Sales = $1007700
Sales Return = -$78200
Net Sales = $929500
Less Estimated Gross profit ratio(30%) = $278850
$728850
Estimated cost of Ending inventory = $111520
(b).
Inventory , May 1 = $166500
Net Purchases at Cost = $655700
Less Purchase Discount = $12530
$643170
Freight Cost on Purchases = $30700
Cost of goods available for sales = $840370
Less Estimated cost of goods sold
Sales = $1007700
Sales Return = -$78200
Net Sales = $929500
Less Estimated Gross profit ratio(30%) on Cost = $214500
(929500*30%/130%)
$715000
Estimated cost of Ending inventory = $125370
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