(Gross Profit Method) Astaire 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

$   160,000

Purchases (gross)

640,000  

Freight in

30,000  

Sales

1,000,000  

Sales returns

70,000  

Purchase discounts

12,000  

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.