Gross Margin Method of Estimating Inventory
Response to the following problem:
Jason Company needs to estimate the inventory balance for its quarterly financial statements. The periodic inventory method is used. Records show that quarterly sales totaled $400,000, beginning inventory was $80,000, and net purchases totaled $280,000; the historical gross margin percentage has averaged approximately 40%.
1. What is the approximate amount of ending inventory?
2. If a physical count shows only $100,000 in inventory, what could be the explanation for the difference?