On October 15, 2020, a fire destroyed all the stock of equipment of Eyeliner Equipment Center in its rented stockroom. The records of the firm show the following information:
2019 2018 2017 2016
Sales P 925,000 P 880,000 P 790,000 P 710,000
Cost of Sales 758,500 739,200 679,400 624,800
Gross profit P 166,500 P 140,800 P 110,600 P 85,200
Inventory, Jan 1, 2020 P 130,500
Sales Jan 1 to Oct 15, 2020 960,000
Sales returns and allowances 15,000
Purchases, Jan 1 to Oct 15, 2020 890,000
Purchase returns and allowances 12,000
Cost of stock in display room, not destroyed 85,000
How much is the estimated cost of merchandise lost in the fire of October 15, 2020?
1112000
To calculate the estimated cost of merchandise lost in the fire, we need to determine the cost of sales for the period from January 1, 2020, to October 15, 2020.
Step 1: Calculate the cost of sales for the period.
Cost of Sales = Purchases - Purchase Returns and Allowances + Inventory, Jan 1 - Cost of Stock in Display Room, Not Destroyed
Cost of Sales = P890,000 - P12,000 + P130,500 - P85,000
Cost of Sales = P923,500
Step 2: Calculate the estimated cost of merchandise lost.
Estimated Cost of Merchandise Lost = Cost of Sales / (Sales Jan 1 to Oct 15 - Sales Returns and Allowances)
Estimated Cost of Merchandise Lost = P923,500 / (P960,000 - P15,000)
Estimated Cost of Merchandise Lost = P923,500 / P945,000
Estimated Cost of Merchandise Lost = P0.977
Therefore, the estimated cost of merchandise lost in the fire on October 15, 2020, is approximately P977.
To calculate the estimated cost of merchandise lost in the fire of October 15, 2020, we need to determine the cost of goods sold (COGS) from January 1 to October 15, 2020.
First, you need to calculate the net purchases for the period by subtracting purchase returns and allowances from purchases.
Net Purchases = Purchases - Purchase returns and allowances
Net Purchases = P890,000 - P12,000
Net Purchases = P878,000
Next, calculate the cost of goods available for sale by adding the inventory on January 1, 2020, to the net purchases.
Cost of Goods Available for Sale = Inventory, Jan 1, 2020 + Net Purchases
Cost of Goods Available for Sale = P130,500 + P878,000
Cost of Goods Available for Sale = P1,008,500
Now, we need to calculate the cost of goods sold (COGS) from January 1 to October 15, 2020. To do this, we subtract the cost of stock in the display room (not destroyed) from the cost of goods available for sale.
COGS = Cost of Goods Available for Sale - Cost of stock in display room, not destroyed
COGS = P1,008,500 - P85,000
COGS = P923,500
Finally, subtract the sales returns and allowances from the sales made from January 1 to October 15, 2020, to get the estimated cost of merchandise lost in the fire.
Estimated Cost of Merchandise Lost = Sales Jan 1 to Oct 15, 2020 - Sales returns and allowances - COGS
Estimated Cost of Merchandise Lost = P960,000 - P15,000 - P923,500
Estimated Cost of Merchandise Lost = P921,500
Therefore, the estimated cost of merchandise lost in the fire of October 15, 2020, is P921,500.