(Gross Profit Method) 5 Inventory, May 1 $??160,000 Purchases (gross) 640,000 Fr
ID: 2480685 • Letter: #
Question
(Gross Profit Method)
5
Inventory, May 1
$??160,000
Purchases (gross)
640,000
Freight-in
30,000
Sales revenue
1,000,000
Sales returns
70,000
Purchase discounts
12,000
Instructions
Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales.
Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost.
(Gross Profit Method)
5
Mark Price Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.Inventory, May 1
$??160,000
Purchases (gross)
640,000
Freight-in
30,000
Sales revenue
1,000,000
Sales returns
70,000
Purchase discounts
12,000
Instructions
(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.
Explanation / Answer
a.Inventory, May 1 (at cost)$160,000
Purchases (gross) (at cost)640,000
Purchase discounts(12,000)
Freight-in30,000
Goods available (at cost)818,000
Sales (at selling price)$1,000,000
Sales returns (at selling price)(70,000)
Net sales (at selling price)930,000
Less gross profit (30% of $930,000)$279,000
Sales (at cost)651,000
Approximate inventory, May 31 (at cost)$167,000
b.Inventory, May 1 (at cost)$160,000
Purchases (gross) (at cost)640,000
Purchase discounts(12,000)
Freight-in30,000
Goods available (at cost) 818,000
Sales (at selling price)$1,000,000
Sales returns (at selling price)(70,000)
Net sales (at selling price)930,000
Less gross profit (23.08% of $930,000)214,615
Sales (at cost) 715,385
Approximate inventory, May 31 (at cost) $102,615
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