Leon Legler requires an estimate of the cost of goods lost by fire on March 9. M

Question

Leon Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $40,100. Purchases since January 1 were $68,400; freight-in, $3,100; purchase returns and allowances, $2,100. Sales are made at 33 1/3% above cost and totaled $94,900 to March 9. Goods costing $11,100 were left undamaged by the fire; remaining goods were destroyed.

Compute the cost of goods destroyed.

Compute the cost of goods destroyed, assuming that the gross profit is 33 1/3% of sales.

Explanation / Answer

1.

Cost of Merchandise on hand on March 9:

=Beginning merchandise+purchase+ freight- purchase returns

=$40,100+$68,400+3100-2100

=$109500

Cost of good sold=94900/1.3333

=$71,175

Cost of good destroyed=cost of goods in hand on March 9 -cost of good sold -cost of good remains undamaged

=$109,500-71,175-$11,100

=$27,225

2.

Gross profit is 33.33% on sales then cost of good sold 66.67%(100-33.33)

Cost of good sold=$94,900×66.67%

=$67270

Cost of good destroyed=cost of goods in hand on the March 9 -cost of good sold -cost of good remains undamaged

=$109,500-67270-$11,100

=$31,130

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