Mark Price Company uses the gross profit method to estimate inventory for monthl

Question

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 $ 173,900 Purchases (gross) 648,500 Freight-in 30,500 Sales revenue 1,086,400 Sales returns 82,900 Purchase discounts 12,480

(a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales. The estimated inventory at May 31 $

(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.) The estimated inventory at May 31 $

Explanation / Answer

Net Sales = Sales - Sales returns = $1,086,400 - $82,900 = $1,003,500.

a)

Cost of Goods Sold = Net Sales Less Gross Profit

Let Sales = 100, So, Gross profit = 30% of 100 = 30, So, Cost of goods Sold = 100 - 30 = 70

So, 70 % x Sales = Cost of Goods Sold.

So, Cost of Goods Sold = 70% of $1,003,500. = $702,450

But, Cost of Goods Sold = Opening Stock + Purchases - Purchase discounts + Freight-in - Closing Stock

So, Closing Stock = Opening Stock + Purchases - Purchase discounts + Freight-in - Cost of Goods Sold

= $ 173,900 + $ 648,500 - $ 12,480 + $ 30,500 - $702,450

= $137,970.

b)

Let Cost of Goods Sold = 100

So, Cost + Gross Profit = Sales

So, 100 + 100 x 30% = 130

So, 130 represents Sales of $1,003,500

So, Cost represented by 100 = ($1,003,500 / 130) x 100 = $771,923

So, Closing Stock = Opening Stock + Purchases - Purchase discounts + Freight-in - Cost of Goods Sold

= $ 173,900 + $ 648,500 - $ 12,480 + $ 30,500 - $771,923

= $68,497.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.