Mark Price Company uses the gross profit method to estimate inventory for monthly reporting...

Question:

Mark Price 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 $ 160,900
Purchases (gross) 640,200
Freight-in 31,400
Sales revenue 1,020,300
Sales returns 76,200
Purchase discounts 12,250

(a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales.

(b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost.

Inventory Valuation:

Ending inventory has to be computed accurately in order for the profit to be correct. Gross profit on sales is the percentage applied on the sales made.It will be included in the sales price. And Gross profit on cost is the percentage of profit applied on the cost of goods available for sales. Cost of goods available for sale = beginning inventory + purchases made + freight-in.

Answer and Explanation:

  • Some calculations are made before solving the parts a and b.
  • Sales = $1020300, sales returns = $76200, therefore Net sales = $1020300(-)$76200 =...

See full answer below.

Become a Study.com member to unlock this answer! Create your account

View this answer

Learn more about this topic:

Loading...
Calculate Ending Inventory: Formula & Explanation

from Financial Accounting: Help and Review

Chapter 1 / Lesson 6
167K

Related to this Question

Explore our homework questions and answers library