Question

2 Crawford Furniture Company purchases E9-10 (Relative Standalone Sales Value Method) During 2015, Crawford Furniture Comna a carload of wicker chairs. The manufacturer sells the chairs to Crawford for a lump sum of £60mm it is discontinuing manufacturing operations and wishes to dispose of its entire stock. Three types old are included in the carload. The three types and the estimated selling price for each are listed below Type Lounge chairs Armchairs Straight chairs No. of Chairs 400 300 800 Estimated Selling Price Each £90 80 During 2015, Crawford sells 200 lounge chairs, 100 armchairs, and 120 straight chairs. Instructions What is the amount of gross profit realized during 2015? What is the amount of inventory of unsold stang chairs on December 31, 2015?

Answer 1

Sol. WN(1) Cost of Chairs

Estimated Selling price of Lounge Chairs = 400 * 90 = GBP 36,000

Estimated Selling price of Armchairs = 300 * 80 = GBP 24,000

Estimate Selling price of Straight Chairs = 800 * 50 = GBP 40,000

Combined Cost of All Chairs = GBP 60,000 and to be distributed in ratio of Selling price i.e. 36:24:40 for Lounge, Arm & Straight.

Cost of 400 Lounge chairs = 60000 * 36/100 = GBP 21,600 and of 1 Unit = 21600/400 = GBP 54

Cost of 300 Arm Chairs = 60000 * 24/100 = GBP14,400 and for 1 Unit = 14400/300 = GBP 48

Cost of 800 Straight Chairs = 60000 * 40/100 = GBP 24,000 and for 1 Unit = 24000/800 = GBP 30

a) Calculation of Gross Profit

	Particulars	Working	Amount (In GBP
	Sale Value	(200*90)+(100*80)+(120*50)	32,000
Less:	Purchase Value	(200*54)+(100*48)+(120*30)	19,200
	Gross Profit		12,800

b) Amount of Inventory unsold of Straight Chairs (i.e. Closing Stock of Straight Chairs)

= (800 Purchased - 120 Sold) * GBP 30 Cost = GBP 20,400