Question
Lopez Company uses the gross profit method to estimate ending inventory and cost of goods sold when preparing monthly financial statements required by its bank.
Lopez Company uses the gross profit method to estimate ending inventory and cost of goods sold when preparing monthly financial statements required by its bank. Inventory on hand at the end of September was $133,000. The following information for the month of October was available from company records:
Purchases $225,000
Freight-in 5,800
Sales 356,000
Sales returns 9,600
Purchases returns 4,900
In addition, the company discovered that $10,000 of inventory was stolen during October from one of the company's warehouses.
a. Calculate the estimated inventory at the end of October, assuming a gross profit ratio of 30%.
b. What would be the gross profit ratio if the markup on cost was 25%? (Note: Do not recalculate the estimated inventory under this new gross profit ratio.)
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