Blossom 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 $ 161,900 Purchases (gross) 697,000 Freight-in 31,400 Sales revenue 924,000 Sales returns 73,200 Purchase discounts 12,100 Collapse question part (a) Incorrect answer. Your answer is incorrect. Try again. Compute the estimated inventory at May 31, assuming that the gross profit is 25% of net sales. The estimated inventory at May 31

$240,100

Explanation:

The gross profit is the difference between the sales revenue and the cost of good sold. The gross profit percentage is the ratio of gross profit to net sales expressed as a percentage.

The movement in the balance of inventory at the start and end of a period is as a result of sales and purchases. While sales reduces the balance in inventory, purchases increases the balance. This may be expressed mathematically as

Opening balance + purchases - cost of goods sold = closing balance

Net purchase =  $697,000 - $12,100

= $684,900

Net sales = $924,000 - $73,200

= $850,800

Gross profit = 25% * $850,800

= $212,700

Cost of goods sold = $850,800  - $212,700

= $638,100

$161,900 + $684,900  + $31,400 - $638,100  = estimated inventory at May 31

estimated inventory at May 31 = $240,100