Tony Legler requires an estimate of the cost of goods lost by fire on March 9. M
ID: 2609888 • Letter: T
Question
Tony Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $38,200. Purchases since January 1 were $73,800; freight-in, $3,300; purchase returns and allowances, $2,200. Sales are made at 33 1/3% above cost and totaled $96,800 to March 9. Goods costing $11,900 were left undamaged by the fire; remaining goods were destroyed
Tony Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $38,200. Purchases since January 1 were $73,800; freight-in, $3,300; purchase returns and allowances, $2,200. Sales are made at 33 1/3% above cost and totaled $96,800 to March 9. Goods costing $11,900 were left undamaged by the fire; remaining goods were destroyed
Explanation / Answer
Sales = Cost + 33 1/3% of cost
96,800 = Cost + 1/3rd of Cost
96,800 = 4/3 of Cost
Cost of goods sold = 96,800×3/4 = $72,600
Gross profit = 33 1/3% of sales = 1/3rd of sales = 1/3×96,800 = $32,267
Cost of goods sold = Sales - Gross profit = 96,800-32,267 = $64,533
Beginning merchandise $38,200 Purchase 73,800 Freight in 3,300 Less: Purchase returns and allowances (2,200) Cost of goods available for sale 113,100 Less: Cost of goods sold (72,600) Ending merchandise on March 9 40,500 Less: Good undamaged (11,900) Cost of goods destroyed $28,600