During 2020, Wildhorse Furniture Company purchases a carload of wicker chairs. The manufacturer sells the chairs to Wildhorse for a lump sum of $29,925 because it is discontinuing manufacturing operations and wishes to dispose of its entire stock. Three types of chairs are included in the carload. The three types and the estimated selling price for each are listed below.

Type No. of Chairs Estimated Selling Price Each
Lounge chairs 1,040 $90
Armchairs 780 80
Straight chairs 1,820 50

During 2020, Splish sells 520 lounge chairs, 260 armchairs, and 312 straight chairs.

a. What is the amount of gross profit realized during 2020?
b. What is the amount of inventory of unsold straight chairs on December 31, 2020? (Round cost per chair to 2 decimal places, e. g. 78.25 and final answer to 0 decimal places, e. g. 5,845.)

a. $74,222.50  

b. $20,947.50  

Explanation:

The gross profit is the difference between the sales revenue and the cost of good sold.  The gross profit percentage is the ratio of gross profit to net sales expressed as a percentage.

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.

Given;

Type                         No. of Chairs     Estimated Selling Price Each

Lounge chairs                 1,040                     $90

Armchairs                          780                      $80

Straight chairs                  1,820                     $50

Total                                 3,640

The total cost of

Lounge chairs = 1040/3640 * $29,925

= $8,550

Armchairs = 780/3640 * $29,925

= $6,412.50

Straight chairs = 1820/3640 * $29,925

= $14,962.5 0

During 2020, Splish sells 520 lounge chairs, 260 armchairs, and 312 straight chairs.

If the company sells sells 520 lounge chairs, 260 armchairs, and 312 straight chairs

cost of ;

Lounge chairs sold = 520/1040 * $8550

= $4275

armchairs sold = 260/780 * $6,412.50

= $2,137.5

straight chairs = 312/1820 * $14,962.5 0

= $2,565.00  

Total cost of sales = $4275 + $2,137.5  + $2,565.00  

= $8,977.50  

Sales from

Lounge chairs sold = 520 * $90

= $46,800

armchairs sold = 260 * $80

= $20,800

straight chairs = 312 * $50

= $15,600

Total sales = $46,800 + $20,800 + $15,600

= $83,200.00  

Gross profit = $83,200.00  - $8,977.50  

= $74,222.50  

Amount of inventory unsold = $29,925 - $8,977.50  

= $20,947.50  

answer; functional fixedness;