Gheorghe Moresan Lumber Company handles three principal lines of merchandise wit

Question

Gheorghe Moresan Lumber Company handles three principal lines of merchandise with these varying rates of gross profit on cost.

Lumber 25%

Milwork 30%

Hardware 40%

On August 18, a fire destroyed the office, lumber shed, and a considerable portion of the lumber stacked in the yard. To file a report of loss for insurance purposes, the company must know what the inventories were immediately preceding the fire. No detail or perpetual inventory records of any kind were maintained. The only pertinent information you are able to obtain are the following facts from the general ledger, which was kept in a fireproof vault and thus escaped destruction.

Submit your estimate of the inventory amounts immediately preceeding the fire.

Lumber Millwork Hardware Inventory, Jan. 1, 2014 $255,600 $92,240 $53,600 Purchases to Aug. 18, 2014 1,531,600 378,800 162,300 Sales to Aug. 18, 2014 2,068,300 557,960 254,520

Explanation / Answer

Solution:

Caluculation of Inventory:

(B). Caluculation of Expected Gross Profit:

Lumber: 2,068,300 * 25 / 100

   = 5,17,075

Milwork:   557,960 * 30 / 100

= 1,67,388

Hardware:   254,520 * 40 / 100

   = 1,01,808

(C). Estimated Loss of Inventory:

Lumber:     (1 - 25%) 20,68,300

= 4,96,392

Milwork : (1 - 30%) 5,57,960

   = 1,61,808.4

   Hordware: (1 - 40%) 2,54,520

   = 99,262.8

Particulars Lumber Milwork Hardware Begining Inventory 2,55,600 92,240 53,600 Add: Purchases 15,31,600 3,78,800 1,62,300 Goods Avilable For Sales 17,87,200 4,71,040 2,15,900 Less: Sales 20,68,300 5,57,960 2,54,520 Ending Inventory Loss (2,81,100) (86,920) (38,620)

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