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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

You are the warehouse manager for Discovery Kitchen Supplies. On a Sunday in May, you receive a phone call from the owner. He states that the entire building and contents were destroyed by fire. For the police report and the insurance claim, the owner has asked you to estimate the value of the lost inventory. Your records, which luckily were backed up on the hard drive of your home computer, indicate that at the time of the fire, the net sales to date were $615,400 and the purchases were $232,600. The beginning inventory on January 1 was $312,000. For the past three years, the company has operated at a gross margin of 60%. Use the gross profit method to calculate your answer.

To determine

To calculate: The cost of ending inventory for January, with the help of gross profit method. Given that, Discovery Kitchen Supplies maintains a gross margin of 60% on all its kitchen supplies. In January, the company had a beginning inventory of $312,000, net purchase of $232,600, and net sales of $615,400.

Explanation

Given Information:

The necessary information for this problem:

gross margin = 60%beginning inventory = $312,000net purchase = $232,600net sales = $615,400

Formula used:

Step 1: Relation between Goods available for sale with beginning inventory and net purchased is given by:

Goods Available for Sale = Beginning Inventory + Net Purchased

Step 2: Estimated cost of goods sold is given by:

Estimated cost of goods sold = Net sales (100% Gross margin%)

Step 3: Estimated ending inventory is given by:

Estimated ending inventory = Goods available for saleEstimated cost of goods sold

Calculation:

List the beginning inventory and purchases and calculate the goods available for sale. Add purchases and beginning inventory to determine goods available for sale at both cost and retail

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