Question

Exercise 9-14 Vaughn 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 Purchases (gross) Freight-in Sales revenue Sales returns Purchase discounts 174,600 607,000 29,300 983,300 67,700 12,700 Compute the estimated inventory at May 31, assuming that the gross profit is 20% of net sales. The estimated inventory at May 31 LINK TO TEXT VIDEO: SIMILAR EXERCISE Compute the estimated inventory at May 31, assuming that the gross profit is 20% of cost. (Round percentage of sales to 2 decimal places, eg. 78.74% and final answer to 0 decimal places, e.g.6,225.) The estimated inventory at May 31

Answer 1

1	Compute the estimated inventory assuming gross profit is 20% of net sales
	Inventory, May 1 (at cost)		$174,600
	Purchases (gross) (at cost)		$607,000
	Purchase discounts		-$12,700
	Freight-in		$29,300
	Goods available (at cost)		$798,200
	Sales (at selling price)	$983,300
	Sales returns (at selling price)	-$67,700
	Net sales (at selling price)	$915,600
	Less: Gross profit (20% of $915,600)	$183,120
	Sales (at cost)		$732,480
	Approximate inventory, May 31 (at cost)		$65,720
2	Compute the estimated inventory assuming gross profit is 20% of cost
	Inventory, May 1 (at cost)		$174,600
	Purchases (gross) (at cost)		$607,000
	Purchase discounts		-$12,700
	Freight-in		$29,300
	Goods available (at cost)		$798,200
	Sales (at selling price)	$983,300
	Sales returns (at selling price)	-$67,700
	Net sales (at selling price)	$915,600
	Less: Gross profit (16.67% of $915,600)	$152,631
	Sales (at cost)		$762,969
	Approximate inventory, May 31 (at cost)		$35,231
	Note: 20% of cost then 20/120 = 16.67 % of sales