(C) GROSS PROFIT PERCENTAGE METHODRamirez Distributors, Inc., supplies ice cream shops with various toppings for making sundaes.

(C) GROSS PROFIT PERCENTAGE METHODRamirez Distributors, Inc., supplies ice cream

shops with various toppings for making sundaes. On November 17, 2016, a pack of wild people

escaped from a weight-reduction spa broke into one section of the warehouse and ate all the toppings

resulting in a total loss of all toppings stored in that section. Ramirez Dist. Inc. must provide its

insurance company with an estimate of the amount of inventory lost. The following information is

available from the company's accounting records:

Required: Calculate the estimated cost of each of the toppings lost in the melee:

(show your work) CkFig: Fruit Toppings lost = $10,000.

Fruit

Toppings

Marshmallow

Toppings

Chocolate

Toppings

Historical gross profit ratio 20% 30% 35%

Inventory, January 1, 2016 $ 20,000 $ 7,000 $ 3,000

Net purchases through Nov 17 150,000 36,000 12,000

Net sales through Nov. 17 200,000 55,000 20,000

ADDITIONAL CONSIDERATION: Watch out for "Mark-up on Cost"

In some circumstances you are given Mark-up on Cost %. Don't make the mistake of thinking Mark-up on

Cost % is equivalent to the Gross Profit %. Accountants like to use the Gross Profit %, while non-accountant

business people may prefer to use Mark-up on Cost %. Luckily, with the simple formula identified as 

below Mark-up on Cost % is easily converted to Gross Profit %. An example to further illustrate the

difference between Mark-up on Cost % versus Gross Profit % is provided next.

When I pay $60 for a skateboard that I plan to resell, I need to determine the price tag value. I always add 50%

of the cost ($30) to the cost and that is my selling price ($90). I sell the skateboard for $90. I employ a 50%

"Markup on Cost". What "Gross Profit %" is implied by a 50% Markup on Cost?

Hint: Assume I sell that one skateboard, imagine the resulting Income Statement.

Income Statement Income Statement

for one skateboard sold as % of Sales

Net Sales Rev $

90 ⇒ Net Sales% 100 % ← Net Sales always @ 100%

CoGS $

60 ⇒ CoGS% 662⁄3% ← = $60 / $90

Gross Profit $

30 ⇒ Gross Profit% 331⁄3% ← = $30 / $90

 Formula for converting "Markup on Cost %" to "Gross Profit %":

Markup on Cost% / (100% + Markup on Cost%) = Gross Profit %

50% / (100% + 50%) = 331⁄3%

Thus, a Markup on Cost of 50% implies a Gross Profit % of 331⁄3%

Double check formula  with formula :

 Formula for converting "Gross profit %" to "Markup on cost %"?

Gross Profit% / CoGS as percent of Net Sales = Markup on Cost

331⁄3% / 662⁄3% = 50%Markup on Cost

Be careful to note which way the percentage is being stated. If stated as "Markup on Cost", then convert to

"Gross Profit %", then Gross Profit Method can be applied the usual way. See next problem.

Financial Accounting(Turck)—(9)SupEx(inventory)F18.docx Name (prepare on seperate

paper)

Use plenty of paper for this SupEx. 4

(D) GROSS PROFIT PERCENTAGE METHOD (CONTINUED)

(convert "Mark-up on Cost percent" given below to "Gross Profit percent")

(review "ADDITIONAL CONSIDERATION" on the prior page!)

GLM Lumber Company handles three principal lines of merchandise with these varying rates of

markup on cost percentage:

Lumber 25%

Millwork 30%

Hardware and fittings 40%

On August 18, a fire destroyed all the lumber, millwork and even the hardware and fittings. To file

a report of loss for insurance purposes, the company must determine the cost values of inventories

on-hand immediately preceding the fire. No detail or perpetual inventory records of any kind were

maintained. The only pertinent information you are able to obtain are the following facts from the

general ledger, which was kept in a fireproof vault and thus escaped destruction.

Required: Submit your estimate of the inventory amounts immediately preceding the fire.

Show your work. To match the check figure(s) provided, you will need to round

Gross Profit Percentage to one figure to the right of the decimal point. (i.e., XX.X%)

Lumber Millwork Hardware

Inventory, Jan 1, 2016 $ 250,000 $ 90,000 $ 45,000

Purchases to Aug. 18, 2016 1,500,000 375,000 160,000

Sales to Aug. 18, 2016 2,080,000 533,000 210,000

Est. of Ending Inventory $ 55,060 CkFig