Question

Crane 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 $ 171,200

Purchases (gross) 596,600

Freight-in 28,400

Sales revenue 957,000

Sales returns 64,700

Purchase discounts 12,300

Compute the estimated inventory at May 31, assuming that the gross profit is 25% of net sales. The estimated inventory at May 31

Answer 1

The estimated inventory at May 31 = $114,675

Explanation

Computation of estimated inventory at May, 31,
assuming that the gross profit is 25% of net sales
	$	$
Inventory, May 1		171,200.00
Purchases (gross)		596,600.00
Purchase discounts		(12,300.00)
Freight-in		28,400.00
Goods Available for sale		783,900.00
Less:
Sales	957,000.00
Sales returns	(64,700.00)
Net sales	892,300.00
Less gross profit (25% of $892,300)	223,075.00
Sales (at cost)		669,225.00
Inventory, May 31		114,675.00