Question

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

Lumber		25%
Millwork		30%
Hardware and fittings		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.

		Lumber		Millwork		Hardware
Inventory, Jan. 1, 2017		$247,300		$91,000		$45,900
Purchases to Aug. 18, 2017		1,492,500		380,200		163,000
Sales to Aug. 18, 2017		2,112,100		570,700		228,200

Submit your estimate of the inventory amounts immediately preceding the fire. (Round ratios for computational purposes to 5 decimal places, e.g. 78.74265% and final answers to 0 decimal places, e.g. 28,987.)

Answer 1

COMPUTATION OF ESIMATE OF THE INVENTORY AMOUNT IMMEDIATELY PRECEEDING THE FIRE :-

Lumber:-

Gross profit = 25% on cost

So, cost of goods sold 100%

Gross profit 25%

Sales 125%

Given sales = $ 21,121,00

Therefore, cost of goods sold = (2112100÷125)×100

Cost of goods sold = 1689680

Profit = 422420 ( 1689680 × 25%)

Sales = 2112100

Closing inventory = opening inventory + purchases - COGS

= 247300 + 492500 - 1689680 = 50120

Mill work :-

Gross profit = 30 % on cost

So, cost of goods sold =100%

Profit = 30%

Sales = 130%

Given sales = $ 570,700

Therfore, Cost of goods sold = (570700÷130)×100

Cost of goods sold = 439000

Gross profit = 131700 ( 439000 × 30 %)

Sales = 570700

Closing inventory = opening inventory + purchases - COGS

= 91000 + 380200 - 439000 = 32200

Hardware :-

Gross profit = 40% on cost

So, cost of goods sold 100%

Profit 40%

Sales 140%

Given sales = $ 228200

Therfore, cost of goods sold = ( 228200 ÷ 140 ) × 100

Cost of goods sold = 163000

Gross profit = 65200 ( 163000×40%)

Sales = 228200

Closing inventory = opening inventory + purchases - COGS

= 45900 + 163000 - 163000 = 45900

Estimate of the inventory amounts immediately preceeding the fire:-

Lumber = $ 50120

Mill work = $ 32300

Hardware = $ 45900