I need to calculate the GROSS PROFIT of a company from the transaction list belo
ID: 2415477 • Letter: I
Question
I need to calculate the GROSS PROFIT of a company from the transaction list below. I am utilizing the LIFO method in a perpetual inventory system. I have completed journal entries for this problem, but my current gross profit (which is $3,496.85) is off by "a few thousand" according to my teacher, so I need someone to explain to me where I'm going wrong, how to fix it, and what the CORRECT, SIGNIFICANTLY HIGHER GROSS PROFIT is. Thanks in advance!
8/6 Ts purchased 200 long sleeve blue shirts on account from Frooty for $3 each. Terms FOB-SP 2/10, n30 Shipping costs = $40
8/8 Ts purchased 500 short sleeve blue shirts on account from Frooty for $2.50 each. Terms FOB-D 2/15, n30 Shipping costs = $50
8/10 Ts notified Frooty that 50 of the long sleeve shirts were purple. After negotiation, Frooty agreed to reduce the price of those shirts to $2 each. Ts agreed to keep the shirts.
8/11 Ts purchased 400 long sleeve blue shirts on account from Frooty for $3.50 each. Terms FOB-D n/eom Shipping costs = $40
8/12 Ts sold 290 long sleeve blue shirts to RSkool on account for $8 each. Terms FOB-SP 1/10, n30 Shipping costs = $30
8/14 Ts paid for the purchase on the 6th.
8/16 Ts sold 20 long sleeve purple shirts to RSkool on account for $5 each. Terms FOB-D 2/10, n/eom Shipping costs = $5
8/18 Ts paid for the short sleeve shirts
8/20 Ts sold 380 short sleeve shirts to RSkool on account for $7 each. Terms FOB-SP n/eom Shipping costs = $38
8/21 Ts received payment from RSkool for the long sleeve blue shirts
8/22 RSkool returned 100 of the short sleeve shirts because they were too small.
8/24 Ts sold 200 long sleeve blue shirts to RSkool on account for $8 each. Terms FOB-D 3/5, n/30 Shipping costs = $30
8/29 Ts received payment from RSkool for the purchase on the 24th
8/30 Ts received payment from RSkool for the purple shirts.
8/31 Ts received payment from RSkool for the purchase on the 20th
8/31 Ts paid for the purchase on the 11th.
Explanation / Answer
Calculation of Purchases Date Transactions No s Rate Amount Shipping Cost Total Cost Average Rate 6th Aug Long sleeve Blue shirt Purchases 150.00 3.00 450.00 40.00 490.00 3.27 (200-50) 8th Aug Short sleeve Blue shirt Purchases 500.00 2.50 1,250.00 50.00 1,300.00 2.60 10th Aug Reduce the long sleeve price 50.00 2.00 100.00 (due to they are in purple) 11th Aug Long sleeve Blue shirt Purchases 400.00 3.50 1,400.00 40.00 1,440.00 3.60 Total Purchase Cost 3,230.00 Calculation of Sales No s Rate Amount 12th Aug Sale of Long sleeve blue shirts 290.00 8.00 2,320.00 18th Aug Sale of Long sleeve Purple shirts 20.00 5.00 100.00 18th Aug Sale of Short sleeve blue shirts 380.00 7.00 2,660.00 22th Aug Sales return (100 shirts of short sleeves) (100.00) 7.00 (700.00) 24th Aug Sale of Long sleeve blue shirts 200.00 8.00 1,600.00 Total Value 790.00 35.00 5,980.00 Calculation of Closing stock Value (Based on LIFO Method) No s Rate Amount Purple Shirts 30.00 2.00 60.00 Short sleeve blue shirts 220.00 2.60 572.00 (500-380+100) Long sleeve blue shirts 60.00 3.27 196.00 (200-50+400-290-200) Total Value 310.00 828.00 Calculation of Gross Profit Total Sale Value 5,980.00 Add: Closing Stock 828.00 Less: Purchases 3,230.00 Less: Shipping Cost on sales 103.00 Gross Profit 3,475.00 Note: Shipping cost on sales we assumed that we are paid.
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