Problem: 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 $ 160,000
Purchases (gross) 640,000
Freight-in 30,000
Sales 1,000,000
Sales returns 70,000
Purchase discounts 12,000
Instructions
(1) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales.
(2) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost.