Question

Martinez 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		$ 175,600
Purchases (gross)		617,400
Freight-in		31,700
Sales revenue		973,200
Sales returns		68,100
Purchase discounts		12,900

Part 1

Correct answer iconYour answer is correct.

Compute the estimated inventory at May 31, assuming that the gross profit is 20% of net sales.

The estimated inventory at May 31

$enter the dollar amount of the estimated inventory at May 31

$87,720 (I got correct, but not part 2)

Part 2

Incorrect answer iconYour answer is incorrect.

Compute the estimated inventory at May 31, assuming that the gross profit is 20% 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

$enter the dollar amount of the estimated inventory at May 31

Answer 1

1	Compute the estimated inventory at May 31, assuming that the gross profit is 20% of net sales.
	Cost of Goods sold is computed as follows:-
		Sales revenue		$ 973,200
	Less	Sales returns		$ 68,100
		Net Sales		$ 905,100
	Less:	Gross Profit (20% of net sales)		$ 181,020
		Cost of Goods sold		$ 724,080
	Estimated ending inventory of Finished Goods (May 31) is computed as follows:-
		Beginning inventory of Finished Goods		$ 175,600
	Add:	Net Purchases
		Purchases (gross)	$   617,400
		Add:Freight-in	$     31,700
		Less:Purchase discounts	$     12,900	$ 636,200
[42]		Cost of Goods available for sale		$ 811,800
	Less:	Cost of Goods sold		$ 724,080
		Estimated ending inventory of Finished Goods (May 31)		$ 87,720
2	Compute the estimated inventory at May 31, assuming that the gross profit is 20% of cost.
	Gross Profit on cost			20.00%
	Gross Profit on sales (20/(100+20)*100)			16.67%
	Cost of Goods sold is computed as follows:-
		Sales revenue		$ 973,200
	Less	Sales returns		$ 68,100
		Net Sales		$ 905,100
	Less:	Gross Profit (16.67% of net sales)		$ 150,880
		Cost of Goods sold		$ 754,220
	Estimated ending inventory of Finished Goods (May 31) is computed as follows:-
		Beginning inventory of Finished Goods		$ 175,600
	Add:	Net Purchases
		Purchases (gross)	$   617,400
		Add:Freight-in	$     31,700
		Less:Purchase discounts	$     12,900	$ 636,200
[42]		Cost of Goods available for sale		$ 811,800
	Less:	Cost of Goods sold		$ 754,220
		Estimated ending inventory of Finished Goods (May 31)		$ 57,580

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