QUESTION # 1: A retailer has yearly sales of $650,000. Inventory on January 1 is $260,000 (at cost). During the year, $500,000 of merchandise (at cost) is purchased. The ending inventory is $275,000 (at cost). Operating costs are $90,000. a. Calculate the cost of goods sold b. Calculate the net profit

PART A: Cost of goods sold = = = = PART B: Net Profit = Gross Profit – Operating Expenses Cost of merchandise available for sale – cost value of ending inventory ($260,000 + $500,000) - $275,000 $760,000 - $275,000 $485,000

First you have to calculate the Gross Profit: Gross Profit = = = Sales – Cost of Goods Sold $650,000 - $485,000 (calculated in Part A) $165,000

Now, you can calculate the net profit: Net Profit = = $165,000 - $90,000 (from problem) $75,000

QUESTION # 2: A retailer has a beginning monthly inventory valued at $60,000 at retail and $35,000 at cost. Net purchases during the month are $140,000 at retail and $70,000 at cost. Transportation charges are $7,000. Sales are $150,000. Markdowns and discounts equal $20,000. A physical inventory at the end of the month shows merchandise valued at $10,000 (at retail) on hand. Compute the following: a. b. c. d. e. f. Total merchandise available for sale – at cost and at retail Cost complement Ending retail book value of inventory Stock shortages Adjusted ending retail book value Gross profit

Part A: Total merchandise available AT COST = Beginning monthly inventory + Net purchases + transportation charges

= = Total merchandise available AT RETAIL =

$35,000 + $70,000 + $7,000 $112,000 Beginning monthly inventory + Net purchases

= =

$60,000 + $140,000 $200,000

(Note: You don’t include transportation charges at retail. You only include them in the COSTS the retailer has to pay to acquire the goods.)