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Martinez 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 $146,400
Purchases (gross) 581,500
Freight-in 27,800
Sales revenue 917,100
Sales returns 69,300
Purchase discounts 12,200

Compute the estimated inventory at May 31, assuming that the gross profit is 25% of net sales. The estimated inventory at May 31 $____
Compute the estimated inventory at May 31, assuming that the gross profit is 25% of cost. (Round percentage of sales to 2 decimal places, e.g. 78.74% and final answer to O decimal places, e.g. 6,225.) The estimated inventory at May 31 $___

Answer 1

To estimate the inventory at May 31 using the gross profit method, we calculate the gross profit, cost of goods sold (COGS), and then subtract the COGS from the cost of goods available for sale. The estimated inventory at May 31, assuming a 25% gross profit margin on net sales, is $674,200. If we assume a 25% gross profit margin on cost, the estimated inventory at May 31 is $22,020.

Step-by-step explanation:

To compute the estimated inventory at May 31 using the gross profit method, we first need to calculate the gross profit. The gross profit is 25% of the net sales, which is $917,100 - $69,300 - $12,200 = $835,600. Now, let's calculate the cost of goods sold (COGS) by subtracting the gross profit from the sales revenue: $917,100 - $835,600 = $81,500. To estimate the inventory at May 31, we need to find the cost of goods available for sale. This can be calculated by adding the inventory at the beginning ($146,400) to the purchases ($581,500) and the freight-in ($27,800): $146,400 + $581,500 + $27,800 = $755,700.

Next, we subtract the COGS ($81,500) from the cost of goods available for sale ($755,700) to find the estimated inventory at May 31: $755,700 - $81,500 = $674,200.

Therefore, the estimated inventory at May 31, assuming the gross profit is 25% of net sales, is $674,200.

Now, let's calculate the estimated inventory at May 31 using the gross profit method assuming the gross profit is 25% of cost. We can find the cost of goods sold by dividing the sales revenue by 1 plus the gross profit percentage: $917,100 / (1 + 0.25) = $733,680.

To estimate the inventory at May 31, we subtract the cost of goods sold from the cost of goods available for sale: $755,700 - $733,680 = $22,020.

Therefore, the estimated inventory at May 31, assuming the gross profit is 25% of cost, is $22,020.

Answer 2

To compute the estimated inventory at May 31 using the gross profit method, we need to calculate the gross profit and apply the appropriate percentage. Assuming the gross profit is 25% of net sales, the estimated inventory is $68,875. Assuming the gross profit is 25% of cost, the estimated inventory is also $68,875.

Step-by-step explanation:

To compute the estimated inventory on May 31 using the gross profit method, we first need to calculate the gross profit. Gross profit is calculated by subtracting the cost of goods sold (COGS) from net sales revenue. We then multiply the gross profit by the appropriate percentage to find the estimated inventory.

To calculate the estimated inventory assuming the gross profit is 25% of net sales, we first calculate the COGS:

COGS = Net sales - Gross profit

COGS = $917,100 - ($917,100 * 0.25) = $687,825

Next, we calculate the estimated inventory:

Estimated Inventory = Inventory at May 1 + Purchases + Freight-in - COGS

Estimated Inventory = $146,400 + $581,500 + $27,800 - $687,825 = $68,875

To calculate the estimated inventory assuming the gross profit is 25% of cost, we can use a similar method:

COGS = Net sales - (Net sales * Gross profit percentage)

COGS = $917,100 - ($917,100 * 0.25) = $687,825

Estimated Inventory = Inventory at May 1 + Purchases + Freight-in - COGS

Estimated Inventory = $146,400 + $581,500 + $27,800 - $687,825 = $68,875