Question

PRINTER VERSION Exercise 9-14 (Part Level Submission) Riverbed 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 Purchases (gross) Freight-in Sales revenue Sales returns Purchase discounts $ 171,100 686,700 28,700 1,067,400 63,300 11,300 ▸ (a) (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 answer to o decimal places, e.g. 6,225.) The estimated inventory at May 31

Answer 1

Answer)

Calculation of Value of ending inventory at May’31

Cost of Goods sold = Beginning inventory + Purchases (gross) – Purchase discounts + Freight inward – ending inventory $

$ 772,385 = $ 171,100 + $ 686,700 - $ 11,300 + $ 28,700 – ending inventory

$ 772,385 = $ 875,200 – ending inventory

Ending inventory = $ 875,200 - $ 772,385

                                = $ 102,815    

Therefore the value of inventory at May’31 is $ 102,815

Working Notes:

Calculation of Net Sales Revenue

Net Sale revenue = Sales revenue – Sales returns

                                = $ 1,067,400 - $ 63,300

                               = $ 1,004,100

Therefore net sale revenue of the company is $ 1,004,100.

Calculation of Cost of Goods Sold

Let us assumed the Cost of goods sold of the company is “x”

Since the Cost of goods sold is “x” and the gross profit is 30% of cost of goods sold, therefore the value of gross profit is:

Gross Profit = 30% of x

                      = 0.30x             

Net Sales = Cost of Goods Sold + Gross Profit

$ 1,004,100 = x + 0.30x

$ 1,004,100 = 1.30x

x = $ 772,384.62 or $ 772,385 (rounded off)

Therefore the value of cost of goods sold is $ 772,385.