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 $00160,000 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.

Answer 1

To estimate the inventory at May 31 using the gross profit method, calculate the cost of goods sold (COGS) by subtracting the gross profit from sales revenue. Then, use the formula provided to calculate the estimated inventory at May 31.

Step-by-step explanation:

To estimate the inventory at May 31 using the gross profit method, we need to calculate the cost of goods sold (COGS) first. COGS is calculated by subtracting the gross profit from sales revenue. In this case, the gross profit is 30% of sales.

a. Estimated inventory at May 31: Inventory at May 1 + Purchases - COGS = $160,000 + $640,000 - ($1,000,000 * 0.30) = $160,000 + $640,000 - $300,000 = $500,000

b. Estimated inventory at May 31: Inventory at May 1 + Purchases - COGS = $160,000 + $640,000 - (COGS * 0.30) = $160,000 + $640,000 - ($1,000,000 - $70,000 - $12,000) * 0.30 = $500,000

Answer 2

Using the gross profit method, the estimated inventory at May 31 is -$540,000 (decrease) assuming the gross profit is 30% of sales, and $370,000 assuming the gross profit is 30% of cost.

Step-by-step explanation:

To estimate the inventory at May 31 using the gross profit method, we need to determine the cost of goods sold (COGS) and then calculate the estimated inventory.

a. First, calculate the COGS by subtracting the gross profit from the sales revenue: $1,000,000 * 0.30 = $300,000. The COGS is $700,000 ($1,000,000 - $300,000). Then, subtract the COGS from the inventory at May 1 to get an estimated inventory at May 31: $160,000 - $700,000 = -$540,000. Since the result is negative, it indicates a decrease in inventory.

b. To find the estimated inventory at May 31 assuming the gross profit is 30% of the cost, we can calculate the gross profit by multiplying the COGS by 0.30: $700,000 * 0.30 = $210,000. The estimated inventory at May 31 is then $160,000 + $210,000 = $370,000.