Question

Exercise 9-14 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 Purchases (gross) Freight-in Sales revenue Sales returns Purchase discounts $ 160,000 640,000 30,000 1,000,000 70,000 12,000 X] your answer is incorrect. Try again. Compute the estimated inventory at May 31, assuming that the gross profit is 30% of net sales. The estimated inventory at May 31 246,000 $ LINK TO TEXT LINK TO VIDEO x Your answer is incorrect. Try again. 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% and final answer to 0 decimal places, e.g. 6,225.) The estimated inventory at May 31 102,615 $

Answer 1

Gross profit = 30% of net sales

= ($1,000,000 - $70,000) * 30%

= $279,000

Cost of goods sold = Net sales - Gross profit

= ($1,000,000 - $70,000) - $279,000

= $651,000

The estimated inventory at May 31 = Inventory, May 1 + Net purchases + Freight in - Cost of goods sold

= $160,000 + ($640,000 - $12,000) + $30,000 - $651,000

= $167,000

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Gross profit is 30% that is 1/3 of cost; gross profit on sales is 1/4 that is 25%

Gross profit = 25% of net sales

= ($1,000,000 - $70,000) * 25%

= $232,500

Cost of goods sold = Net sales - Gross profit

= ($1,000,000 - $70,000) - $232,500

= $697,500

The estimated inventory at May 31 = Inventory, May 1 + Net purchases + Freight in - Cost of goods sold

= $160,000 + ($640,000 - $12,000) + $30,000 - $697,500

= $120,500