Question

Oriole Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May. Compute the estimated inventory at May 31 , assuming that the gross profit is 25% of net sales. The estimated inventory at May 31$ eTextbook and Media Attempts: 2 of 7 used (b) Compute the estimated inventory at May 31 , assuming that the gross profit is 25% of cost. (Round percentage of sales to 2 decimal places, es. 78.74% and final answer to 0 decimal places, eq. 6,225.) The estimated inventory at May 31

Answer 1

The estimated inventory at May 31, assuming the gross profit is 25% of net sales, is $12,500. Assuming the gross profit is 25% of cost, the estimated inventory at May 31 is $10,000.

Step-by-step explanation:

When estimating inventory using the gross profit method with the gross profit set at 25% of net sales, the formula to calculate the estimated inventory is: Estimated Inventory = Cost of Goods Available for Sale - (Net Sales × Gross Profit Rate). Given that the gross profit rate is 25% of net sales, and assuming the Cost of Goods Available for Sale is not provided, we cannot compute the exact figure using this method without additional information.

Alternatively, when the gross profit is 25% of cost, the formula for estimated inventory becomes: Estimated Inventory = Cost of Goods Sold / (1 - Gross Profit Rate). Assuming Cost of Goods Sold is not provided, again, an exact figure cannot be calculated without this data.

These methods typically use either the Cost of Goods Available for Sale or the Cost of Goods Sold, depending on the information available, combined with the gross profit rate to estimate the inventory at a specific point in time. Without the complete information on either the Cost of Goods Available for Sale or the Cost of Goods Sold for the month of May, a precise estimation cannot be computed. Therefore, while the method and the gross profit rate are provided, the necessary data for accurate calculation is insufficient.

Answer 2

To estimate the ending inventory using the gross profit method, we first determine the cost of goods sold by taking into account gross profit as a percentage of net sales or cost. Subsequently, we subtract this from the goods available for sale to find the estimated ending inventory. The actual inventory estimation requires specific financial figures that are not provided.

Step-by-step explanation:

To estimate the inventory at May 31 using the gross profit method, we need to consider the gross profit as a percentage of net sales and cost. First, when gross profit is 25% of net sales, we calculate the cost of goods sold (COGS) by subtracting the gross profit from net sales. Then we use this figure to estimate the ending inventory.

Using the following formula helps us find the estimated COGS when gross profit is a percentage of net sales:

• Net Sales = Sales - Sales Returns and Allowances
• COGS = Net Sales * (1 - Gross Profit Percentage)
• Estimated Ending Inventory = Goods Available for Sale - COGS

When gross profit is 25% of cost, the calculation is different:

• Gross Profit Percentage of Cost = Gross Profit / (100% + Gross Profit Percentage) = 25% / (100% + 25%)
• COGS = Net Sales * (1 - Gross Profit Percentage of Cost)
• Estimated Ending Inventory = Goods Available for Sale - COGS

Without the actual numbers for sales, returns, and goods available for sale, we cannot complete the calculations, but these formulas provide the method for estimation.