Bramble 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 |
1) Compute the estimated inventory at May 31, assuming that the gross profit is 35% of sales.
2)Compute the estimated inventory at May 31, assuming that the gross profit is 35% of cost. (Round percentage of sales to 2 decimal places, e.g. 78.74% and final answer to 0 decimal places, e.g. 6,225.)
Answer:
1) Compute the estimated inventory at May 31, assuming that the gross profit is 35% of sales.
| Particular | Amount in $ | Amount in $ |
| Inventory, May 1 (at cost) | 159500 | |
| Purchases (gross) (at cost) | 593300 | |
| Purchase discounts | -10800 | |
| Freight-in | 32900 | |
| Goods available (at cost) | 774900 | |
| Sales (at selling price) | 974400 | |
| Sales returns (at selling price) | -75900 | |
| Net sales (at selling price) | 898500 | |
| Less gross profit (35% of $898500) | 314475 | |
| Sales (at cost) | 584025 | |
| Approximate inventory, May 31 (at cost) | 190875 |
2)Compute the estimated inventory at May 31, assuming that the gross profit is 35% of cost.
| Particular | Amount in $ | Amount in $ |
| Inventory, May 1 (at cost) | 159500 | |
| Purchases (gross) (at cost) | 593300 | |
| Purchase discounts | -10800 | |
| Freight-in | 32900 | |
| Goods available (at cost) | 774900 | |
| Sales (at selling price) | 974400 | |
| Sales returns (at selling price) | -75900 | |
| Net sales (at selling price) | 898500 | |
| Less gross profit (25.92% of $898500) | 232891.2 | |
| Sales (at cost)= 898500/1.35 | 665608.8 | |
| Approximate inventory, May 31 (at cost) | 109291.2 |
Notes:
For 2nd option it was given that,35% on cost so we will find what % on sells as follow
% on sales
= 35% /100*35%
=25.92%
