Question

Please help me with this question!

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 $59,600. The following information for the month of November was available from company records:

Purchases	$	121,000
Freight-in		4,100
Sales		235,000
Sales returns		16,000
Purchases returns		4,000

In addition, the controller is aware of $5,000 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 60%.

Required 1 d 1 Required 2 Calculate the estimated inventory at the end of November, assuming a gross profit ratio of 40%. $ Beginning inventory Plus: Net purchases Freight-in Cost of goods available for sale Less: Cost of goods sold: 59,600 117,000 4,100 180,700 Net sales $ 94,000 94,000 Less: Estimated gross profit Estimated cost of goods sold Estimated cost of inventory before theft Less: Stolen inventory Estimated ending inventory 180,700 (5,000) 175,700 $ Required 1 Required 2 >

Answer 1

Ans. 1	Particulars	Amount	Amount
	Beginning inventory (at cost)		$59,600
	Plus : Net purchase		$117,000
	Freight - in		$4,100
	Cost of goods available for sale		$180,700
	Less: Cost of goods sold
	Net sales (at selling price)	$219,000
	Less: Estimated gross profit	-$87,600
	Estimated cost of goods sold		$131,400
	Estimated cost of inventory before theft		$49,300
	Less: Stolen inventory		-$5,000
	Estimated ending inventory		$44,300
	Ending inventory for October = Beginning inventory for November = $59,600
	Net purchase =   Purchases - Purchase returns
	$121,000 - $4,000   =   $117,000
	Net sales =   Sales - Sales returns
	$235,000 - $16,000 =   $219,000
	Estimated gross profit = Net sales * 40%
	Estimated cost of inventory before theft   = Cost of goods available for sale - Estimated cost of goods sold
Ans. 2	Particulars	Amount	Amount
	Beginning inventory (at cost)		$59,600
	Plus : Net purchase		$117,000
	Freight - in		$4,100
	Cost of goods available for sale		$180,700
	Less: Cost of goods sold
	Net sales (at selling price)	$219,000
	Less: Estimated gross profit	-$82,125
	Estimated cost of goods sold		$136,875
	Estimated cost of inventory before theft		$43,825
	Less: Stolen inventory		-$5,000
	Estimated ending inventory		$38,825
	Markup on 60% of cost   =   60% / (100% + 60%) * 100 =   37.50% of sales
	Estimated gross profit = Net sales * 37.50%