E9-12B (Gross Profit Method) Schmidt 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 $ 40,000
Purchases (gross) 160,000
Freight-in 7,500
Sales 250,000
Sales returns 17,500
Purchase discounts 3,000
Instructions
(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.