Question

PB6-3 Recording Sales and Purchases with Discounts and Returns and Analyzing Gross Profit Percentage [LO 6-4, LO 6-5] [The following information applies to the questions displayed below.] Larry's Building Supplies (LBS) is a local hardware store. LBS uses a perpetual inventory system. The following transactions (summarized) have been selected for analysis: $500,000 a. Sold merchandise for cash (cost of merchandise $224,350). b. Received merchandise returned by customers as unsatisfactory (but in perfect condition) for cash refund (original cost of merchandise $1,900). c. Sold merchandise (costing $3,000) to a customer on account with terms n/30. d. Collected half of the balance owed by the customer in (c). e. Granted a partial allowance relating to credit sales the customer in (c) had not yet paid. 3,000 5,000 2,500 950 PB6-3 Part 4 4. LBS is considering a contract to sell building supplies to a local home builder for $20,000. These materials will cost LBS $16,000. Would this contract increase (or decrease) LBS's dollars of gross profit and its gross profit percentage? (Round "Gross Profit Percentage" to 1 decimal place.) Gross Profit Gross Profit Percentage by to %

Answer 1

Net sales:	Cost of goods sold:
$5,00,000	$2,24,350
-$3,000	-$1,900
$5,000	$3,000
-$950
$5,01,050	$2,25,450
Gross profit:
$5,01,050
-$2,25,450
$2,75,600
Gross profit ratio:
$2,75,600	A
$5,01,050	B
55.00%	A/B
Gross profit from contract = $20,000 - $16,000 = $4,000
Gross Profit increases by $4,000
Gross profit ratio:
$2,79,600	A
$5,21,050	B
53.7%	A/B
Gross profit percentage reduced to 53.7%