Cougar Corp. requires an estimate of the cost of goods lost by fire on May 15th.
ID: 2452032 • Letter: C
Question
Cougar Corp. requires an estimate of the cost of goods lost by fire on May 15th. Merchandise on hand on January 1 was $41,000. Purchases since January 1 were $112,000. Freight paid on these inventory purchases is $5,100. The company also returned inventory that originally cost $3,400 (the retail price for the returned inventory is $5,800). Sales, which are made at 50% above cost, totaled $213,000 through May 15th. Goods costing $6,900 were left undamaged by the fire (the remaining goods were destroyed). Compute the cost of goods destroyed by the fire using the gross profit inventory method.
Explanation / Answer
let cost of goods sold be "X"
Gross profit = .50 X
sales =cost +gross profit
213000 = X + .50X
1.50X = 213000
X(cost) = 213000 /1.50
= $ 142,000
Cost of goods sold =Beginning Inventory + purchase +freight -purchase return - ending inventory
142000 = 41000 + 112000 + 5100 - 5800 - Y
142000 = 152300- Y
Y (ending inventory ) = 152300 - 142000
= $ 10300
cost of goods destroyed by fire = 10300 - 6900
= $ 3400