Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Me
ID: 2467050 • Letter: T
Question
Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $39,810. Purchases since January 1 were $92,800; freight-in, $4,200; purchase returns and allowances, $2,000. Sales are made at 33 1/3% above cost and totaled $125,400 to March 9. Goods costing $11,830 were left undamaged by the fire; remaining goods were destroyed.
(a) Compute the cost of goods destroyed.
(b) Compute the cost of goods destroyed, assuming that the gross profit is 33 1/3% of sales. (Round ratios for computational purposes to 5 decimal places, e.g. 78.72345% and final answer to 0 decimal places, e.g. 28,987.)
Explanation / Answer
No, they are not the same thing. Total goods available for sale were 134,010. (39,810 + 92,000 + 4,200 - 2,000)
(a) If Sales are made at 33 1/3% above cost, then COGS = 125,400 / 1.3333, or 94,052 and cost of goods destroyed = 125,400 - 11,830 - 94,052, or 19,518.
(b) If Gross Profit is 33.33% of Sales, then COGS is 66.67%, or 83,604. Cost of goods destroyed = 41,796.