In: Accounting
Flint Company Limited, which follows ASPE, uses the gross profit method to estimate inventory for monthly reports. Information follows for the month of May:
Inventory, May 1 | $ | 364,000 | ||
Purchases | 730,000 | |||
Freight–in | 52,000 | |||
Sales | 1,270,000 | |||
Sales returns | 75,100 | |||
Purchase discounts | 11,100 |
Calculate the estimated inventory at May 31, assuming that the gross profit is 25% of sales.
Estimated inventory, May 31 | $ |
eTextbook and Media
Calculate the estimated inventory at May 31, assuming that the markup on cost is 25%.
Estimated inventory, May 31 | $ |
Answer- The estimated inventory at May 31 =$238725.
Explanation- Ending inventory of August = {(Opening inventory+ Net purchases+ Freight-in +Gross profit}-Net Sales
= {($364000 +$718900 +$52000)+ ($1194900*25%)}- $1194900
= ($1134900+$298725)- $1194900
= $238725
Where- Net Sales = Sales - Sales returns
= $1270000 - $75100
= $1194900
Net Purchases = Purchases-Purchases discounts
= $730000 - $11100
= $718900
Answer- The estimated inventory at May 31 =$178980.
Explanation- Ending inventory of August = {(Opening inventory+ Net purchases+ Freight-in +Gross profit}-Net Sales
= {($364000 +$718900 +$52000)+ ($1194900*20%)}- $1194900
= ($1134900+$238980)- $1194900
= $178980
Where- Net Sales = Sales - Sales returns
= $1270000 - $75100
= $1194900
Net Purchases = Purchases-Purchases discounts
= $730000 - $11100
= $718900
Gross profit of 25% of cost = 20% of sales