Question

Handy Howard's Incorporated, is a student co-op. Handy Howard uses a perpetual inventory system. The following transactions (summarized) have been selected for analysis:
a. Sold merchandise for cash (cost of merchandise $154,870).
b. Received merchandise returned by customers as unsatisfactory (but in perfect condition) for cash refund (original cost of merchandise $608).
c. Sold merchandise (costing $9,180) to a customer on account with terms n/30.
d. Collected half of the balance owed by the customer in (c).
e. Granted a partial allowance relating to credit sales the customer in (c) had not yet paid. 1,140
f. Anticipate further returns of merchandise (costing $204) after month-end from sales made during the month.

Required:
Compute Net Sales and Gross Profit for Handy Howard.

Answer 1

Based on the various transactions by Handy Howard's Incorporated, the Net Sales and Gross Profit are $294,270 and $133,040 respectively.

What are the Net Sales?

This can be found as:

= Sales revenue - Sales returns and allowance

Solving gives:

= 276,700 (revenue) + 21,000 (revenue) - 1,610 (returns) - 1,820 (allowance)

= $294,270

What is the Gross Profit?

This is found as:

= Net sales - Cost of goods sold

Cost of goods sold:

= 152,590 + 9,450 - 810

= $161,230

Gross profit:

= 294,270 - 161,230

= $133,040

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