Question

Whispering 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		$ 171,100
Purchases (gross)		686,700
Freight-in		28,700
Sales revenue		1,067,400
Sales returns		63,300
Purchase discounts		11,300

Compute the estimated inventory at May 31, assuming that the gross profit is 30% of net sales.

The estimated inventory at May 31is ______ 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 is ______

Answer 1

Gross profit = 30% of sales

Cost of goods sold = 70% of sales

Cost of goods sold = (Sales revenue - Sales returns) * 70%

= ($1,067,400 - $63,300) * 70%

= $702,870

Cost of goods available for sale = Beginning inventory + Purchases + Freight-in - Purchase discounts

= $171,100 + $686,700 + $28,700 - $11,300

= $875,200

Ending inventory = Cost of goods available for sale - Cost of goods sold

= $875,200 - $702,870

= $172,330

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Gross profit = 30% of cost

Gross profit on sales = 23.08% on sales (30/130)

Cost of goods sold = 76.92% on sales (100-23.08)

Cost of goods sold = (Sales revenue - Sales returns) * 70%

= ($1,067,400 - $63,300) * 76.92%

= $772,354

Cost of goods available for sale = Beginning inventory + Purchases + Freight-in - Purchase discounts

= $171,100 + $686,700 + $28,700 - $11,300

= $875,200

Ending inventory = Cost of goods available for sale - Cost of goods sold

= $875,200 - $772,354

= $102,846