GPR is 20% of:

GPR on Sales GPR on Cost

Net Sales 100% 120%
Less: Cost of goods sold 80% 100%
Gross Profit 20% 20%
COGS Net Sales x Cost Net Sales/Sales
Ratio Ratio

PRACTICE PROBLEM:
The following information is taken from the records of ZOO Company:

Beginning Inventory 400,000

Purchases 1,900,000
Freight In 20,000
Purchase Returns 50,000
Purchase Discounts 25,000
Sales 2,200,000
Sales Discounts 40,000
Sales Returns and Allowances 150,000

Required: Calculate the cost of sales, cost of ending inventory and estimated gross profit under each of the
independent assumptions. (Round off answers to the nearest peso)

Net sales x Cost Ratio

Or Net Sales / Sales Ratio TGAS – COGS Net Sales - COGS
Cost of Sales Ending Inventory Gross Profit
1. GPR is 20% on sales 2,050,000 x 80% = 1,640,000 605,000 410,000
2. GPR is 30% on cost 2,050,000 / 130% = 1,576,923 668,077 473,077
3. GPR is 40% on sales 2,050,000 x 60% = 1,230,000 1,015,000 820,000
4. GPR is 25% on cost 2,050,000/1.25% = 1,640,000 605,000 410,000
5. GPR is 38% on sales 2,050,000 x 62% = 1,271,000 974,000 779,000

5-15 PRACTICE PROBLEM

1. Net Sales P287,500

Cost of sales 201,250 (261,250 – 60,000)
Gross Profit P86,250

GPR = GP / Net Sales

= 86,250 / 287,500
= 30%

2. TGAS P215,000
Less: Cost of sales 147,000 (210,000 x 70%) Net sales x Cost Ratio
Ending Inventory P68,000

3. Ending Inventory P68,000

Less: Salvaged inventory, P30,000 x 70%= (21,000)
NRV –damaged invty. (8,000)
In transit (20,000)
Cost of inventory lost in fire P19,000

ILLUSTRATION – FIFO RETAIL (Page 412)

Cost Retail
Beg. Invty. 180,000 250,000
Purchases 1,020,000 1,575,000
Additional mark up 200,000
Markup cancelation (25,000)
Markdown (140,000)
Markdown cancelation _________ 15,000
Net purchases 1,020,000 1,625,000
Cost ratio= 1,020,000/1,625,000= 62.77%
GAS 1,200,000 1,875,000
Less: Sales 1,450,000
Sales return (50,000)
Employee discount 40,000
Spoilage & breakage 35,000 (1,475,000)
Ending inventory at retail 400,000
x 62.77%
Ending inventory at cost 251,080
Cost of goods sold (1,200,000 – 251,080) 948,920

14-12 (2019 Ed.)/14-16 (2021 Ed.)

RETAIL INVENTORY METHOD

2021
A. CONSERVATIVE
Cost Retail
Beg. Invty. 420,000 600,000
Purchases 5,011,200 6,890,000
Net markup _________ 160,000
GAS conservative 5,431,200 7,650,000
Cost ratio= 5,431,200/7,650,000 = 71%
Net markdown (90,000)
GAS 7,560,000
Sales (6,839,000)
Ending inventory at retail 721,000
x 71%
Ending inventory at cost 511,910
Cost of goods sold (5,431,200 – 511,910) 4,919,290

B. AVERAGE
Cost Retail
Beg. Invty. 420,000 600,000
Purchases 5,011,200 6,890,000
Net markup 160,000
Net markdown _________ (90,000)
GAS 5,431,200 7,560,000
Cost ratio= 5,431,200/7,560,000 = 71.84%
Sales (6,839,000)
Ending inventory at retail 721,000
x 71.84%
Ending inventory at cost 517,966
Cost of goods sold (5,431,200 – 517,966) 4,913,234

SOLUTION DURING EXAM:

Average Method:
Cost ratio= 5,431,200/7,560,000 = 71.84%

Ending inventory at retail 721,000

x 71.84%
Ending inventory at cost 517,966
Cost of goods sold (5,431,200 – 517,966) 4,913,234

C. FIFO RETAIL
Cost Retail
Beg. Invty. 420,000 600,000
Purchases 5,011,200 6,890,000
Net markup 160,000
Net markdown _________ (90,000)
Net purchases 5,011,200 6,960,000
Cost ratio= 5,011,200/6,960,000 = 72%
GAS 5,431,200 7,560,000
Sales (6,839,000)
Ending inventory at retail 721,000
x 72%
Ending inventory at cost 519,120
Cost of goods sold (5,431,200 – 519,120) 4,912,080

SOLUTION DURING EXAM:

FIFO Method:
Cost ratio= 5,011,200/6,960,000 = 72%

Ending inventory at retail 721,000

x 72%
Ending inventory at cost 519,120
Cost of goods sold (5,431,200 – 519,120) 4,912,080

2022
A. CONSERVATIVE
Cost Retail
Beg. Invty. 511,910 721,000
Purchases 4,970,000 7,110,000
Net markup _________ 100,000
GAS conservative 5,481,910 7,931,000
Cost ratio= 5,481,910/7,931,000 = 69.12%
Net markdown (110,000)
GAS 7,821,000
Sales (7,033,000)
Ending inventory at retail 788,000
x 69.12%
Ending inventory at cost 544,666
Cost of goods sold (5,481,910 – 544,666) 4,937,244

B. AVERAGE

Cost Retail
Beg. Invty. 517,966 721,000
Purchases 4,970,000 7,110,000
Net markup _________ 100,000
GAS 5,487,966 7,931,000
Net markdown (110,000)
GAS 7,821,000
Cost ratio= 5,487,966 / 7,821,000= 70.17%

Sales (7,033,000)
Ending inventory at retail 788,000
x 70.17%
Ending inventory at cost 552,940
Cost of goods sold (5,487,966 – 552,940) 4,935,026

C. FIFO RETAIL

Cost Retail
Beg. Invty. 519,120 721,000
Purchases 4,970,000 7,110,000
Net markup 100,000
Net markdown (110,000)
Net Purchases 4,970,000 7,100,000
Cost ratio= 4,970,000 / 7,100,000= 70%
GAS 5,489,120 7,821,000
Sales (7,033,000)
Ending inventory at retail 788,000
x 70%
Ending inventory at cost 551,600
Cost of goods sold (5,489,120 – 551,600) 4,937,520