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(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