Question

Blossom Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $47,880, Purchases since January 1 were $90,720; freight-in, $4,284; purchase returns and allowances, $3,024. Sales are made at 33 1/% above cost and totaled $150,000 to March 9. Goods costing $13,734 were left undamaged by the fire; remaining goods were destroyed. Your answer is incorrect. Compute the cost of goods destroyed. (Round gross profit percentage and final answer to 0 decimal places, eg. 15 % or 125.) $ Cost of goods destroyed eTextbook and Media Your answer is incorrect Compute the cost of goods destroyed, assuming that the gross profit is 331/ % of sales. (Round ratios for computational purposes to 5 decimal places, e.s. 78.72345% and final answer to O decimal places, e.g. 28,987) $ Cost of goods destroyed

Answer 1

(a) First we will calculate the cost of goods sold :

Sales = $150000

Gross profit = 33 1/3% on cost.

It means if cost is 100 then sales is 133, so,

Cost of goods sold = $150000 * 100 / 133 = $112782

Next, we will calculate the cost of goods destroyed by fire by the following equation:

Cost of goods sold = Beginning inventory + Purchases + Freight in - Purchase returns & allowances - Cost of goods destroyed - Cost of goods undamaged.

Putting the values in the above equation, we get,

$112782 = $47880 + $90720 + $4284 - $3024 - Cost of goods destroyed - $13734

$112782 = $126126 - Cost of goods destroyed.

Cost of goods destroyed = $126126 - $112782 = $13344

(b) First we will calculate the cost of goods sold :

Sales = $150000

Gross profit = 33 1/3% on sales.

It means that if sales is 100, then cost is 67. So,

Cost of goods sold = $150000 * 67 / 100 = $100500

Next, we will calculate the cost of goods destroyed by fire by the following equation:

Cost of goods sold = Beginning inventory + Purchases + Freight in - Purchase returns & allowances - Cost of goods destroyed - Cost of goods undamaged.

Putting the values in the above equation, we get,

$100500 = $47880 + $90720 + $4284 - $3024 - Cost of goods destroyed - $13734

$100500 = $126126 - Cost of goods destroyed by fire.

Cost of goods destroyed = $126126 - $100500 = $25626