# 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 =...

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