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 $59,400. The following information for the month
of November was available from company records:
Purchases | $ | 119,000 | |
Freight-in | 3,900 | ||
Sales | 225,000 | ||
Sales returns | 9,500 | ||
Purchases returns | 8,500 | ||
In addition, the controller is aware of $12,500 of inventory that
was stolen during November from one of the company's
warehouses.
Required:
1. Calculate the estimated inventory at the end of
November, assuming a gross profit ratio of 40%.
2. Calculate the estimated inventory at the end of
November, assuming a markup on cost of 100%.
1.
|
2.
|
1 | Estimated Cost of ending Inventory | = | $ 32,000 |
2 | Estimated Cost of ending Inventory | = | $ 53,550 |
Workings: | |||
1 | Cost of beginning Inventory | $ 59,400 | |
Add: | Net Purchase | $ 1,10,500 | |
Add: | Freight on purchase | $ 3,900 | |
Cost of goods available for sale | $ 1,73,800 | ||
Cost of goods sold: | |||
Net Sales | $ 2,15,500 | ||
Less: | Gross Profit (@40%) | $ -86,200 | |
Cost of goods sold | $ 1,29,300 | ||
Estimated cost of Inventory before theft | $ 44,500 | ||
Less: | Inventory stolen | $ 12,500 | |
Estimated Cost of ending Inventory | $ 32,000 | ||
2 | Cost of beginning Inventory | $ 59,400 | |
Add: | Net Purchase | $ 1,10,500 | |
Add: | Freight on purchase | $ 3,900 | |
Cost of goods available for sale | $ 1,73,800 | ||
Less: | Cost of goods sold: | ||
Net Sales | $ 2,15,500 | ||
Less: | Estimated Gross Profit [($215500/2)*1] | $ -1,07,750 | |
Estimated Cost of goods sold | $ 1,07,750 | ||
Estimated cost of Inventory before theft | $ 66,050 | ||
Less: | Inventory stolen | $ 12,500 | |
Estimated Cost of ending Inventory | $ 53,550 |
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