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Chapter 9: 15E (page 479)

Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was \(38,000. Purchases since January 1 were \)72,000; freight-in, \(3,400; purchase returns and allowances, \)2,400. Sales are made at 331 /3% above cost and totaled \(100,000 to March 9. Goods costing \)10,900 were left undamaged by the fire; remaining goods were destroyed. Instructions (a) Compute the cost of goods destroyed. (b) Compute the cost of goods destroyed, assuming that the gross profit is 331 /3% of sales.

Short Answer

Expert verified

(a) Cost of goods destroyed equals $25,100.

(b) Cost of goods destroyed equals $33,433.33.

Step by step solution

01

Calculation of gross profit on sales

Gross profit on sales is calculated as follows:

Grossprofitpercentageonsales=Percentagemarkuponcosts100%+Percentagemarkuponcosts=3313%100%+3313%=25%

02

Calculation of cost of goods sold

Cost of goods sold is calculated as follows:

Costofgoodssold=Salesrevenue脳1-Grossprofit=$100,000脳1-25%=$75,000

03

Calculation of goods destroyed

(a) Calculation of cost of goods destroyed is calculated as follows:

Costofgoodsdestroyed=Beginninginventory+Purchases-Purchasereturn+Freightin-Costofgoodssold-Undamagedgoods=$38,000+$72,000-$2,400+$3,400-$75,000-$10,900=$25,100

04

Calculation of cost of goods sold

Cost of goods sold is calculated as follows:

Costofgoodssold=Salesrevenue脳1-Grossprofitpercentage=$100,000脳1-3313%=$66,666.67

05

Calculation of goods destroyed

(a) Calculation of cost of goods destroyed is calculated as follows:

Costofgoodsdestroyed=Beginninginventory+Purchases-Purchasereturn+Freightin-Costofgoodssold-Undamagedgoods=$38,000+$72,000-$2,400+$3,400-$66,666.67-$10,900=$33,433.33

Thus, cost of goods destroyed in case (a) equals $25,100, and in case (b) equals $33,433.33.

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