Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.

Instructions

Inventory, May 1 $ 160,000

Purchases (gross) 640,000

Freight-in30,000

Sales 1,000,000

Sales returns 70,000

Purchase discounts 12,000

(a) Compute the estimated inventory at May 31, assuming that the gross profit is 25% of sales. (b) Compute the estimated inventory at May 31, assuming that the gross profit is 25% of cost.