Question

Estimating Inventory Using Gross Profit Method

The following data is from Netflicks Company for 2020.

Sales revenue	$312,000
Beginning inventory	41,600
Purchases	208,000

For each separate case a through e, estimate ending inventory.

a. Markup is 50% on cost.	?
b. Markup is 60% on sales.	?
c. Markup is 25% on cost.	?
d. Markup is 40% on sales.	?
e. Markup is 60% on cost.	?

Answer 1

Solution :

Markup when it is on Cost = [Sales / (100+ Markup)] * Markup

Markup when it is on Sales = Sales * Markup%

Case	Sales	Markup	Markup Working	Cost of Goods Sold*	Ending Inventory**
a	$ 312,000	Markup is 50% on cost.	$ 312,000 / 150 * 50 = $ 104,000	$ 208,000	$ 41,600
b	$ 312,000	Markup is 60% on sales	$ 312,000 * 60% = $ 187,200	$ 124,800	$ 124,800
c	$ 312,000	Markup is 25% on cost.	$ 312,000 / 125 * 25 = $ 62,400	$ 249,600	$ 0
d	$ 312,000	Markup is 40% on sales	$ 312,000 * 40% = 124,800	$ 187,200	$ 62,400
e	$ 312,000	Markup is 60% on cost	$ 312,000 / 160 * 60 = $ 117,000	$ 195,000	$ 54,600

*Cost of Goods Sold = Sales - Markup

**Ending Inventory = Op. Inventory + Purchases - Cost of Goods Sold