Gross Profit Method Royal Gorge Company uses the gross profit method to estimate

Question

Gross Profit Method

Royal Gorge 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 October was $58400. The following information for the month of November was available from company records:

Purchases of $114000

Freight-in of $3900

Sales of $188000

Sales Returns of $5200

Purchase Returns of $4300

In addition, the controller is aware of $8600 of inventory that was stolen during November from one of the company's warehouses.

Required:

1. Using the template below, calculate the estimated inventory at the end of November, assuming a gross profit ratio of 37%.

2. Using the template below, calculate the estimated inventory at the end of November, assuming a markup on cost of 100%.

1. Net Purchases

1. Cost of Goods Available for Sale

1. Net Sales

1. Estimated Gross Profit

1. Estimated Cost of Goods Sold

1. Estimated Inventory before Theft

1. Estimated Ending Inventory

2. Net Purchases

2. Cost of Goods Available for Sale

2. Net Sales

2. Estimated Gross Profit

2. Estimated Cost of Goods Sold

2. Estimated Inventory before Theft

2. Estimated Ending Inventory

Beginning Inventory 58400 Plus: Net purchases ?? Freight-in 3900 Cost of Goods Available for Sale ?? Less: Cost of Goods Sold Net Sales ?? Less Estimated Gross Profit ?? Estimated Cost of Goods Sold ?? Estimated Inventory before Theft ?? Less: Stolen Inventory 8600 Estimated Ending Inventory ??

Explanation / Answer

1)

2)

Beginning Inventory $58,400 Plus: Net purchases ($114,000-4300) $109,700 Freight-in $3900 Cost of Goods Available for Sale $172,000 Less: Cost of Goods Sold Net Sales (188,000-5,200) $182,800 Less Estimated Gross Profit (182,800*37/100) ($67,636) Estimated Cost of Goods Sold $115,164 Estimated Inventory before Theft $56,836 Less: Stolen Inventory $8,600 Estimated Ending Inventory $48,236

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