Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Me
ID: 2469173 • 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 $38,280. Purchases since January 1 were $93,030; freight-in, $4,800; purchase returns and allowances, $2,800. Sales are made at 33 1/3% above cost and totaled $127,800 to March 9. Goods costing $12,360 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.)
Cost of goods destroyed $________
Explanation / Answer
If Sales are made at 33 1/3 above cost and totaled $127,800, then COGS must be $96,000.
Merchandise on hand = $38,280
+Purcahses = $93,030
-Purchase return = $2,800
-Freight in = $4,800
Ending Inventory = ?
COGS= 96,000
From the above, you can work out ending inventory to be $36,000. But instead of $27,710, you have only $12,360 that's undamaged, so the cost of goods destroyed must be $15,350.
b)
Compute the cost of goods destroyed, assuming that the gross profit is 33 1/3% of sales
Answer
If gross profit is 33 1/3% of sales and sales are 127,800 then gross profit is 42,600 and total cost of goods gold is 127,800 - 42,600 = 85,200
Beginning inventory 38,280
Purchases 93,030
Purchase Returns & Allowances (2,800)
Freight-In 4,800
Total Cost of Goods Available 133,310
Less: Ending Inventory 48,110
Cost of Goods Sold 85,200
If the actual remaining goods were 12,360 then goods destroyed by the fire were 48,110 less 12,360 for a total of 35,750