Exercise 8-24 Monty Company Limited uses the gross profit method to estimate inv

Question

Exercise 8-24 Monty Company Limited uses the gross profit method to estimate inventory for monthly reports. Information follows for the month of May: Inventory, May 1 $370,000 Purchases Freight-irn Sales Sales returns Purchase discounts 12,600 713,000 50,000 1,330,000 76,900 Calculate the estimated inventory at May 31, assuming that the gross profit is 25% of sales. Estimated inventory, May 31 $ LINK TO TEXT Calculate the estimated inventory at May 31, assuming that the markup on cost is 25% Estimated inventory, May 31 $ LINK TO TEXT

Explanation / Answer

Exercise 8-24 a) Estimated inventory, May 31 $       1,80,575 Working: # 1 Sales         13,30,000 Less Sales Return               76,900 Net Sales         12,53,100 # 2 Purchases           7,13,000 Less Purchase discount               12,600 Net Purchase           7,00,400 # 3 Inventory, May 1           3,70,000 Net Purchase           7,00,400 Freight-in               50,000 Cost of goods available for sale         11,20,400 # 4 Net Sales         12,53,100 Less Gross Profit @25% of sales           3,13,275 Cost of goods sold           9,39,825 # 5 Cost of goods available for sale         11,20,400 Less Cost of goods sold           9,39,825 Estimated Inventory, May 31           1,80,575 b) Estimated inventory, May 31 $       1,17,920 Working: # 1 Assume Cost is 100 Markup is 25 and so sales is 125. Now profit on sales = 25/125 = 20% # 2 Net Sales         12,53,100 Less:Profit on sales@20%           2,50,620 Costs of goods sold         10,02,480 # 3 Cost of goods available for sale         11,20,400 Less Costs of goods sold         10,02,480 Estimated inventory, May 31           1,17,920

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