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I. Gross Profit Method ABC Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month
I. Gross Profit Method
ABC Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of December.
| Cost |
| Retail |
Inventory, Dec 1st. | $ 250,000 |
| $ 520,000 |
Purchases (gross) | 500,000 |
| 980,000 |
Freight-in | 25,000 |
|
|
Sales revenue |
|
| 500,000 |
Sales returns |
|
| 8,000 |
Purchase discounts | 10,000 |
|
|
- Compute the estimated inventory at cost on December 31st, assuming that the gross profit is 20% of sales.
b. How does the answer differ if the gross profit is 25% of cost instead?
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