Henderson Company uses the gross profit method to estimate ending inventory and
ID: 2568350 • Letter: H
Question
Henderson Company uses the gross profit method to estimate ending inventory and cost of goods sold when preparing monthly financial statements required by its bank. Inventory on hand at the end of July was $122,000. The following information for the month of August was available from company records: Purchases $ 218,000 Freight-in 5,100 Sales 349,000 Sales returns 8,900 Purchases returns 4,200 In addition, the controller is aware of $12,000 of inventory that was stolen during August from one of the company’s warehouses.
1. Calculate the estimated inventory at the end of August, assuming a gross profit ratio of 25%.
2. Calculate the estimated inventory at the end of August, assuming a markup on cost of 25%.
Explanation / Answer
Answer =1 Gross Profit = 25% Sales = $ 3,49,000 Gross Profit = 25% $ 87,250 Clsoing Inventory = Sales - Cost of Goods Sold - Gross Profit Sales = $ 3,49,000 Less: Sales Return $ 8,900 $ 3,40,100 Add : Opening Stock $ 1,22,000 Purchases $ 2,18,000 Less: Purchase Return $ 4,200 $ 2,13,800 Less : Freight in $ 5,100 Less : Gross Profit $ 87,250 Closing Stock = $ 1,55,950 Answer =Estimated inventory at the end = $ 1,55,950 Answer =2) CALCULATIO OF ENDING INVENTORY USING MARKUP ON COST 25% CALCULATION OF TOTAL COST AND PORFIT Purchases $ 2,18,000 Less: Purchase Return $ 4,200 $ 2,13,800 Add : Freight in $ 5,100 Total Cost $ 2,18,900 25% profit on Cost = $ 54,725 Calculation of closing Stock Gross Pofitt = Opening Stock + purchases -Closing Stock Closing Stock = Opening Stock + Purchases - Gross Profit Opening Cost = $ 1,22,000 Add: Purchases $ 2,18,900 Less: Gross Profit = $ 54,725 Closing Stock $ 2,86,175 Answer = $ 2,86,175
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