Question

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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 $58,800. The following information for the month of November was available from company records: $113,000 3,300 195,000 8,000 5,500 Purchases Freight-in Sales Sales returns Purchases returns In addition, the controller is aware of $9,500 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 60% Complete this question by entering your answers in the tabs below. Required 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: Net sales Less: Estimated gross profit Estimated cost of goods sold Estimated cost of inventory before theft Less: Stolen inventory Estimated ending inventory Required 2 Required 1

Answer 1

Ans. 1	Particulars	Amount	Amount
	Beginning inventory (at cost)		$58,800
	Plus : Net purchase		$107,500
	Frieght - in		$3,300
	Cost of goods available for sale		$169,600
	Less: Cost of goods sold
	Net sales (at selling price)	$187,000
	Less: Estimated gross profit	-$74,800
	Estimated cost of goods sold		$112,200
	Estimated cost of inventory before theft		$57,400
	Less: Stolen inventory		-$9,500
	Estimated ending inventory		$47,900
	Net purchase =   Purchases - Purchase returns
	$113,000 - $5,500   =   $107,500
	Net sales =   Sales - Sales returns
	$195,000 - $8,000 =   $187,000
	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)		$58,800
	Plus : Net purchase		$107,500
	Frieght - in		$3,300
	Cost of goods available for sale		$169,600
	Less: Cost of goods sold
	Net sales (at selling price)	$187,000
	Less: Estimated gross profit	-$70,125
	Estimated cost of goods sold		$116,875
	Estimated cost of inventory before theft		$52,725
	Less: Stolen inventory		-$9,500
	Estimated ending inventory		$43,225
	Markup on 60% of cost   =   60% / (100% + 60%) * 100 =   37.50% of sales
	Estimated gross profit = Net sales * 37.50%