Question

Heller Company offers an unconditional return policy to its customers. During the current period, the company records total sales of $850,000, with a cost of merchandise to Heller of $340,000. Based on past experience, Heller Company expects 4% of sales to be returned. How much gross profit will Heller Company recognize for the current period? Select one:

A. $510,000 B. $816,000 C. $489,600 D. $360,400 E. $850,000

Answer 1

C. $489,600

Gross Profit Calculation:
Sales		$       8,50,000
Less Sales return		$           34,000
Net Sales	(a)		$ 8,16,000
Cost of goods sold		$       3,40,000
Less merchandise return		$           13,600
Net Cost of goods sold	(b)		$ 3,26,400
Gross Profit	(a)-(b)		$ 4,89,600
Working:
Sales return	=	Total Sales	*	% of sales to be returned
	=	$       8,50,000	*	4%
	=	$           34,000
Merchandise return	=	Cost of goods sold	*	% of sales to be returned
	=	$       3,40,000	*	4%
	=	$           13,600
When sales are returned, merchandise cost will also reduced.