Novak Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below...

Novak 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$ 163,800

Purchases (gross)

651,200

Freight-in

29,500

Sales revenue

925,900

Sales returns

66,700

Purchase discounts

11,300

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

Compute the estimated inventory at May 31, assuming that the gross profit is 25% of cost

Expert Solution

(a) Computation of estimated inventory at May, 31,
assuming that the gross profit is 25% of net sales

	$	$
Inventory, May 1		163,800.00
Purchases (gross)		651,200.00
Purchase discounts		(11,300.00)
Freight-in		29,500.00
Goods Available for sale		833,200.00
Less:
Sales (at selling price)	925,900.00
Sales returns	(66,700.00)
Net sales	859,200.00
Less gross profit (25% of $859,200)	214,800.00
Sales (at cost)		644,400.00
Inventory, May 31		188,800.00



(b) Computation of estimated inventory at May, 31,
assuming that the gross profit is 25% of cost

	$	$
Inventory, May 1		163,800.00
Purchases (gross)		651,200.00
Purchase discounts		(11,300.00)
Freight-in		29,500.00
Goods Available for sale		833,200.00
Less:
Sales (at selling price)	925,900.00
Sales returns	(66,700.00)
Net sales	859,200.00
Less gross profit (859,200*25/125)	171,840.00
Sales (at cost)		687,360.00
Inventory, May 31		145,840.00

ekkarill92 answered 2 years ago

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