Question

Ending Inventory

Plastic Limited uses the gross profit method to estimate inventory for monthly reports. Information follows for the month of May:

Inventory, May 1

$

367,000

Purchases

$714,000

Freight–in

$51,000

Sales

$1,270,000

Sales returns

$75,500

Purchase discounts

$11,600

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

Estimated inventory, May 31

$_____________

Calculate the estimated inventory at May 31, assuming that the markup on cost is 25%.

Estimated inventory, May 31 $_____________

Answer 1

Computation of estimated inventoy assuming gross profit is 25% of sales
Inventory ,May1 (at cost)		3,67,000
Purchases (Gross) (at cost)		7,14,000
Purchase discounts		-11,600
Freight in		51,000
Goods available (at cost)		11,20,400
Sales (at selling price)	12,70,000
Sales retuns (at selling price)	-75,500
Net sales (at selling price)	11,94,500
Less Gross Profit (25% of 1,194,500)	2,98,625
Sales (at cost)		8,95,875
Appoximate Inventory May 31 (at cost)		2,24,525
Computation of estimated inventoy assuming gross profit is 25% of cost
Inventory ,May1 (at cost)		3,67,000
Purchases (Gross) (at cost)		7,14,000
Purchase discounts		-11,600
Freight in		51,000
Goods available (at cost)		11,20,400
Sales (at selling price)	12,70,000
Sales retuns (at selling price)	-75,500
Net sales (at selling price)	11,94,500
Less Gross Profit (20% of 1,194,500) *	2,38,900
Sales (at cost)		9,55,600
Appoximate Inventory May 31 (at cost)		1,64,800
* 25%/(100%+25%) = 20% of sales
i.e, 25% on cost = 20% on sales