Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Me

Question

Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $38,290. Purchases since January 1 were $93,170; freight-in, $3,900; purchase returns and allowances, $2,700. Sales are made at 33 1/3% above cost and totaled $126,000 to March 9. Goods costing $11,300 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.)

Explanation / Answer

(a) the cost of goods destroyed:

Opening stock $38290

+ purchases 93170

+ Freight 3900

135360

- purchase return (2700)

- cost of goods sold   (94500) (126000 *3/4)

Total closing stock = 38160

Less Goods get saved 11300

Cost of goods destroyed = $26860

(b) assuming that the gross profit is 33 1/3% of sales:

the cost of goods destroyed:

Opening stock $38290

+ purchases 93170

+ Freight 3900

135360

- purchase return (2700)

- cost of goods sold (84000) (126000 *2/3)

Total closing stock = 48660

- Goods get saved = 11300

Cost of goods destroyed = $37360

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