Chapter 9, Problem 9.8E

Gross profit method

• LO9–2

Royal Gorge 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 October was $58,500. The following information for the month of November was available from company records:

Purchases	$110,000
Freight-in	3,000
Sales	180,000
Sales returns	5,000
Purchases returns	4,000

In addition, the controller is aware of $8,000 of inventory that was stolen during November from one of the company’s warehouses.

Required:

1. Calculate the estimated inventory at the end of November, assuming a gross profit ratio of 40%.

2. Calculate the estimated inventory at the end of November, assuming a markup on cost of 100%.