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 $38,280. Purchases since January 1 were $93,030; freight-in, $4,800; purchase returns and allowances, $2,800. Sales are made at 33 1/3% above cost and totaled $127,800 to March 9. Goods costing $12,360 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.)

Cost of goods destroyed $________

Explanation / Answer

If Sales are made at 33 1/3 above cost and totaled $127,800, then COGS must be $96,000.

Merchandise on hand = $38,280

+Purcahses = $93,030

-Purchase return = $2,800

-Freight in = $4,800

Ending Inventory = ?

COGS= 96,000

From the above, you can work out ending inventory to be $36,000. But instead of $27,710, you have only $12,360 that's undamaged, so the cost of goods destroyed must be $15,350.

b)

Compute the cost of goods destroyed, assuming that the gross profit is 33 1/3% of sales

Answer

If gross profit is 33 1/3% of sales and sales are 127,800 then gross profit is 42,600 and total cost of goods gold is 127,800 - 42,600 = 85,200

Beginning inventory 38,280
Purchases 93,030
Purchase Returns & Allowances (2,800)
Freight-In 4,800
Total Cost of Goods Available 133,310
Less: Ending Inventory 48,110
Cost of Goods Sold 85,200

If the actual remaining goods were 12,360 then goods destroyed by the fire were 48,110 less 12,360 for a total of 35,750

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