Question

(Gross Profit Method) 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.

Answer 1

Answer:

a. $25,100

b. $33,433

Explanation:

Part a

Sales                                                                             $100,000

Less Cost of Sales :

Opening Merchandise                           $38,000

Add Purchases                                       $72,000

Add Freight In                                           $3,400

Less Purchase Return and Allowance   ($2,400)

Total                                                          111,000

Less Undamaged Inventory                 ($10,900)          

Total                                                       $100,100

Less goods destroyed                          ($25,100)        ($75,000)

Gross Profit                                                                     $25,000

Part b

Sales                                                                             $100,000

Less Cost of Sales :

Opening Merchandise                           $38,000

Add Purchases                                       $72,000

Add Freight In                                           $3,400

Less Purchase Return and Allowance   ($2,400)

Total                                                          111,000

Less Undamaged Inventory                 ($10,900)          

Total                                                       $100,100

Less goods destroyed                          ($33,433)        ($66,667)

Gross Profit                                                                     $33,333