Question

Zidek Corp. repuires an estimate of the cost of goods lost y fire on March 9. Merchandise on hand on January 1 was 38,000. Purchases since January 1 were 92.000; freight-in, 3,400; purchase returns and allowances, 2400. Sales are made at 33 1/3% above cost and totaled 120,000 to March 9. Goods costing 10,900 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.

Answer 1

a.
Merchandise on hand, January 1			$38.000
Purchases			$92.000
Less: Purchase returns and allowances			$2.400
Freight-in			$3.400
Total merchandise available (at cost)			$131.000
Cost of goods sold			$90.000
Ending inventory			$41.000
Less: Undamaged goods			$10.900
Estimated fire loss			$30.100
Gross profit			25%	of sales
Cost of goods sold			$90.000
b.
Cost of goods sold			$79.992
Total merchandise available (at cost)			$51.008
Less: Undamaged goods			$10.900
Estimated fire loss			$40.108

Answer 2

SOLUTION :

a.

Stock available before fire (ending inventory (in dollars)

= (Opening stock + Purchases - Returns  and allowances + Freight-in) - COGS 

= (38000 + 92000 - 2400 + 3400) - Sales / ( 1 + 1/3)   (since sales are 33 1/3 % added to the COGS)

= 131000 - 120000 * 3/4

= 131000 - 90000

= 41000 ($)

Undamaged goods = 10900 ($)

Goods damaged in fire = 41000 - 10900 = 30100 ($) ( NSWER)

b.

CP = sales * 33 1/3 % = 120000 * 1/3 = 40000 ($)

=> COGS = Sales - GP = 120000 - 40000 = 80000

Goods available before fire 

= 131000 - 80000 

= 51000 ($)

Goods damaged în fire

= goods before fire - goods undamaged after fire

= 51000 - 10900

= 40100 ($) (ANSWER).