Question

Cullumber Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $31,920. Purchases since January 1 were $60,480; freight-in, $2,856; purchase returns and allowances, $2,016. Sales are made at 33 1/3% above cost and totaled $90,000 to March 9. Goods costing $9,156 were left undamaged by the fire; remaining goods were destroyed. Incorrect answer iconYour answer is incorrect. Compute the cost of goods destroyed. (Round gross profit percentage and final answer to 0 decimal places, e.g. 15% or 125.) Cost of goods destroyed $ eTextbook and Media Incorrect answer iconYour answer is incorrect. 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 $

Answer 1

Answer: (a)  cost of goods destroyed = $16,584

(b) cost of goods destroyed = $24,084

Explanation:

(a) Net purchase = Purchase + Freight in - purchase return and allowances

                       = $60,480 + $2,856 - $2,016

                       = $61,320

Total cost of goods available for sale = Beginning inventory + Net purchase

                                                              = $31,920 + $61,320

                                                              = $93,240

Calculation of gross profit:

Suppose,

cost = 100

sale price = 133.33

profit on sales = 33.33/133.33 = 25% rounded

Therefore,

Gross profit = 25% of sales

Cost of goods sold = Sales - Gross profit

                                = $90,000 - 25% of $90,000

                                = $90,000 - $22,500

                                = $67,500

Ending inventory = Total cost of goods available for sale - Cost of goods sold

                             = $93,240 - $67,500

                             = $25,740

cost of goods destroyed = Ending inventory - Undamaged goods

                                          = $25,740 - $9,156

                                          = $16,584

(b)

Gross profit = 33 1/3% of sales

                    = $30,000

Cost of goods sold = Sales - Gross profit

                                = $90,000 - $30,000

                                = $60,000

Ending inventory = Total cost of goods available for sale - Cost of goods sold

                             = $93,240 - $60,000

                             = $33,240

cost of goods destroyed = Ending inventory - Undamaged goods

                                          = $33,240 - $9,156

                                          = $24,084