Question

1) During 2017, Martinez Furniture Company purchases a carload of wicker chairs. The manufacturer sells the chairs to Martinez for a lump sum of $60,400 because it is discontinuing manufacturing operations and wishes to dispose of its entire stock. Three types of chairs are included in the carload. The three types and the estimated selling price for each are listed below.

Type		No. of Chairs		Estimated Selling Price Each
Lounge chairs		400		$90
Armchairs		300		80
Straight chairs		700		50

During 2017, Martinez sells 200 lounge chairs, 120 armchairs, and 130 straight chairs.

What is the amount of gross profit realized during 2017? What is the amount of inventory of unsold straight chairs on December 31, 2017?

2) Each of the following gross profit percentages is expressed in terms of cost.

1.		36.00%.
2.		45.00%.
3.		59.99%.
4.		90.00%.

Indicate the gross profit percentage in terms of sales for each of the above.

3)

Exercise 9-14

Culver Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.

Inventory, May 1		$ 160,700
Purchases (gross)		595,100
Freight-in		28,600
Sales revenue		1,028,100
Sales returns		74,200
Purchase discounts		11,600

a) The estimated inventory at May 31

b) compute the estimated inventory at May 31, assuming that the gross profit is 25% of cost. The estimated inventory at May 31

Answer 1

Total sales price of Car lots purchased:
		Units	SP	Total sales
Lounge chairs		400	90	36000
Arm chairs		300	80	24000
Straight chairs		700	50	35000
		Total sales revenue		95000
		Less: Cost		60400
		Gross profit		34600
GP ratio = Gross Profit / Sales *100 = 34600/95000 *100 = 36.42%
Total Gross profit earned:
		Units	SP	GP ratio	GP per unit	Total GP
Lounge chairs		200	90	36.42%	32.778	6555.6
Arm chairs		120	80	36.42%	29.136	3496.32
Straight chairs		130	50	36.42%	18.21	2367.3
				Gross profit		12419.22
Unsold inventory
	Total units	Unit sold	SP	GP ratio	GP per unit	CPU	Unsold units	Inventory value
Lounge chairs	400	200	90	36.42%	32.778	57.222	200	11444.4
Arm chairs	300	120	80	36.42%	29.136	50.864	180	9155.52
Straight chairs	700	130	50	36.42%	18.21	31.79	570	18120.3
						Ending inventory		38720