E9-12B (Gross Profit Method) Schmidt Company uses the gross profit method to estimate inventory for monthly reporting purposes.

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.