Question

Problem 4: Gross Profit Method Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $38,000. Purchases since January 1 were $72,000; freight-in, $3,400; purchase returns and allowances, $2,400. Sales are made at 337% above cost and totaled $100,000 to March 9. Goods costing $10,900 were left undamaged by the fire; remaining goods were destroyed. Instructions Compute the cost of goods destroyed.

Answer 1

Sales = Cost of goods sold + 1/3 (Cost of goods sold)

100000 = 1.333 (cost of good sold)

Cost of goods sold = $75000

Closing Stock = Cost of goods available for sale - cost of goods sold

Closing stock = (38000 + 72000 + 3400 - 2400) - 75000

= $ 36000

Cost of goods destroyed = Closing stock - Cost of undamaged goods

= 36000 - 10900

= $25100