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
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:
|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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