Question

In: Accounting

a company beginning inventory is $130000 its net purchases are $220000 and its net sales total...

a company beginning inventory is $130000 its net purchases are $220000 and its net sales total $470000 its normal gross profit percentage is 30% of sales using the gross profit method how much is ending inventory

A. $21,000

B. $141,000

C. $250,000

D. $ 239,000

An understatement of ending inventory by $2 million in one period results in

A. an overstatement of gross profit by $2 million in next period

B. an understatement of gross profit by $2 million in next period

C. no effect on net income in next period

D.an overstatement of the beginning inventory by $2 million in next period

Packard co was organized to sell a single product that carries a 45 day warranty against defects. Engineering estimates indicate that 3% of the units sold will prove defective and require an average repair cost of $55 per unit. during Packard's first month of operation total sales were 800 units by the end of the month ten defective units had been repaired. The ability for product warranties at month end should be  

A. $550

B. $1,320

C. $ 1,870

D. $770

Solutions

Expert Solution

Ans 1.

Beginning inventory= $130000

Net Purchases= $220000

Net Sales=$470000

Gross Profit= 30% of Net sales= $470000*30%= $141000

Therefore, Calculation of Closing inventory;

Formula:

Opening stock+Purchases+Gross Profit- Sales= Closing Stock

so, 130000+220000+141000-470000= Closing stock

or, Closing stock= $21000

Therefore, ending inventory is option A i.e $21000

Ans.2.

An understatement of Closing inventory by $2 million in one period will result in Overstatement of Opening Inventory by $2 million in the next period.

Reason:

Since, if the closing inventory will overstate in one period in that case the profit of that period will rise. Further, the closing inventory will be transferred to the next period as Opening inventory as $2 million.

Ans. 3.

Packard co provides 45 day warranty against defects.

The engineer estimates 3% of the units sold as defective.

During the month, 800 units were sold .

So, expected defects= 800*3%= 24 units

10 units were already repaired.

Therefore, remaining units to be repaired= (24-10)= 14 units.

Therefore,ability for product warranties= 14 units *55= $770.

The answer is Option D i.e $770.

ekkarill92 answered 1 year ago
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