Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Me

Question

Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $39,810. Purchases since January 1 were $92,800; freight-in, $4,200; purchase returns and allowances, $2,000. Sales are made at 33 1/3% above cost and totaled $125,400 to March 9. Goods costing $11,830 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. (Round ratios for computational purposes to 5 decimal places, e.g. 78.72345% and final answer to 0 decimal places, e.g. 28,987.)

Explanation / Answer

No, they are not the same thing. Total goods available for sale were 134,010. (39,810 + 92,000 + 4,200 - 2,000)

(a) If Sales are made at 33 1/3% above cost, then COGS = 125,400 / 1.3333, or 94,052 and cost of goods destroyed = 125,400 - 11,830 - 94,052, or 19,518.

(b) If Gross Profit is 33.33% of Sales, then COGS is 66.67%, or 83,604. Cost of goods destroyed = 41,796.

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