Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Me
ID: 2468403 • 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 $39,780. Purchases since January 1 were $92,660; freight-in, $5,000; purchase returns and allowances, $2,200. Sales are made at 33 1/3% above cost and totaled $121,200 to March 9. Goods costing $10,980 were left undamaged by the fire; remaining goods were destroyed.
Compute the cost of goods destroyed.
Compute the cost of goods destroyed, assuming that the gross profit is 33 1/3% of sales
Explanation / Answer
Sales to March 9 = $ 121,200
Gross profit = $ 121,200 x 33 1/3 % = $ 40,400
Cost of goods sold = Sales less Gross profit = $ 121,200 - $ 40,400 = $ 80,800
Cost of goods sold = Beginning inventory + Purchases + Freight-in - Purchase returns and allowances - Ending inventory = $ 80,800
Ending inventory = $ 39,780 + $ 92,660 + $ 5,000 - $ 2,200 - $ 80,800 = $ 54,440
Cost of goods destroyed = $ 54,440 - $ 10,980 = $ 43,460