The Doyle Merchandising Company currently sells products only through its store
ID: 2391939 • Letter: T
Question
The Doyle Merchandising Company currently sells products only through its store in Lowell, MA. The company’s expected income statement for store operations in August is presented below.
Doyle Merchandising Company
Income Statement (for Store Operations Only)
For the Month Ended August 31
Sales
$280,000
Cost of Goods Sold
168,000
Gross Profit
$112,000
Operating Expenses
78,400
Income Before Taxes
$33,600
Income Taxes Expense
$11,760
Net Income
$21,840
In addition to continuing its store sales, the Doyle Merchandising Company is considering expanding sales in September by selling through catalogs. The company expects to make catalog sales of $20,000 in September. The company expects its cost of goods sold to continue to average 60% of sales. Catalog operating expenses, other than uncollectible accounts expense, are expected to be 19% of catalog sales. The company’s income taxes rate is expected to continue to average 35% of income before taxes. Although the company collects all its accounts receivable resulting from store sales, it expects to collect only 96% of catalog sales. Determine the expected cost of goods sold for the company’s September $20,000 catalog sales.
$8,000
$180,000
$20,000
$176,000
$12,000
Doyle Merchandising Company
Income Statement (for Store Operations Only)
For the Month Ended August 31
Explanation / Answer
Catalog sales in September = $20, 000
Expected cost on goods sold = 60%
Cost of goods sold for September on Catalog sales
= 20,000 * 60%
=$ 12,000
Option E.. $12,000
Explanation :
Generally, sales = COGS + gross profit
COGS = opening inventory + purchases - closing inventory
In the question, the sales and the expected COGS % is mentioned. So by computing directly, COGS amount is the answer.
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