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Chapter 9: 10E (page 478)

During 2017, Pretenders Furniture Company purchases a carload of wicker chairs. The manufacturer sells the chairs to Pretenders for a lump sum of \(59,850 because it is discontinuing manufacturing operations and wishes to dispose of its entire stock. Three types of chairs are included in the carload. The three types and the estimated selling price for each are listed below. Type No. of Chairs Estimated Selling Price Each Lounge chairs 400 \)90 Armchairs 300 80 Straight chairs 700 50 During 2017, Pretenders sells 200 lounge chairs, 100 armchairs, and 120 straight chairs. Instructions What is the amount of gross profit realized during 2017? What is the amount of inventory of unsold straight chairs on December 31, 2017?

Short Answer

Expert verified

The gross profit during 2017 equals $11,840, and value of inventory of unsold chairs equals $18,270.

Step by step solution

01

Calculation of cost per unit for different type of chairs

Cost per unit of chairs is calculated as follows:

Type

No. of Chairs

Estimated Selling Price Per Each

Total Sales Price

Relative Sales Price

Total Cost

Cost Allocated to Lots

Cost Per Unit

Lounge chairs

$400

$90

$36,000

36000/95000

$59,850

$22,680

$56.70

Armchairs

300

80

24,000

24000/95000

$59,850

15,120

50.40

Straight chairs

700

50

35,000

35000/95000

$59,850

$22,050

31.50

Total



$95,000





02

Calculation of gross profit

Gross profit is calculated as follows:

Type

Units Sold

Estimated Selling Price Per Each

Cost Per Unit

Sales

Total Cost

Gross Profit

Lounge chairs

200

$90

$56.70

$18,000

11340

$6,660

Armchairs

100

80

50.40

8000

5040

2960

Straight chairs

120

50

31.50

6000

3780

2220

Total




$32,000

20160

$11,840

03

Calculation of unsold inventory of straight chairs

Unsold inventory of straight chairs is calculated as follows:

Unsoldinventoryofstraightchairs=Unitspurchased-Unitssold脳Priceperunit=700-120脳$31.50=$18,270

Thus, the gross profit is $11,840 and unsold inventory of straight chairs is $18,270.

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