Question

Computing Gross Profit The following data were taken from the accounts of Fluter Hardware, a small retail business. Sales $120,000 Sales returns and allowances 900 Sales discounts 650 Merchandise inventory, January 1 35,000 Purchases during the period 77,600 Purchases returns and allowances during the period 4,100 Purchases discounts taken during the period 2,300 Freight-in on merchandise purchased during the period 1,250 Merchandise inventory, December 31 32,000 Determine the gross profit.

Answer 1

$43,000

Step-by-step explanation:

The gross profit is the difference between the sales revenue and the cost of good sold. Net sales is the sales less returns and allowances. Similar to net sales is net purchases which is the gross purchase net the allowances and returns.

Net sales

= $120,000 - $900 - $650

= $118,450

The movement in the balance of inventory at the start and end of a period is as a result of sales and purchases. While sales reduces the balance in inventory, purchases increases the balance. This may be expressed mathematically as

Opening balance + purchases - cost of goods sold = closing balance

net purchases = $77,600 - $4100 - $2300 + $1250

= $72,450

therefore,

$35000 + $72,450 - cost of goods sold = $32000

Cost of goods sold = $35000 + $72,450 - $32000

= $75,450

Gross profit = $118,450 - $75,450

= $43,000