Sheridan 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 $ 159,500
Purchases (gross) 593,300
Freight-in 32,900
Sales revenue 974,400
Sales returns 75,900
Purchase discounts 10,800
Compute the estimated inventory at May 31, assuming that the gross profit is 35% of cost.
Steps in the gross profit method to calculate closing inventory is given below:
Example
Cost of Beginning Inventory | $159500 | |
Net Purchases at Cost | =593300 - 10800 =582500 | |
Freight Cost on Purchase | 32900 | |
Cost of Goods Available for Sale | 774900 | |
Less: Estimated Cost of Goods Sold: | ||
Sales | $974400 - 75900 = 898500 | |
Less: Estimated Gross Profit 35% | ?314475 | |
Estimated Cost of Goods Sold | 584025 | |
Estimated Cost of Ending Inventory | $190875 |
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