MCP - Gross Profit Rate Method

1. Intense Company

Beg inventory 6,600,000

Add: Purchases 3,000,000
Freight In 300,000
TGAS 9,900,000
Less: Ending Inventory squeezed) 4,440,000
COGS 5,460,000

Sales 100% 7,800,000

Less: COGS 70% 5,460,000 (7,800,000 x 70%)
GP 30% 2,340,000

2. Keepsake Company

Beg inventory 5,500,000

Purchases 4,300,000
Purchase returns (200,000)
TGAS 9,600,000
Less: Ending inventory 3,600,000
COGS 6,000,000

Sales 125% 7,500,000

COGS 100% 6,000,000 (7,500,000/125%)
GP 25% 1,500,000

3.Newborn Company

Beg inventory 2,500,000

Purchases 7,500,000
TGAS 10,000,000
Less: Ending inventory 1,000,000
COGS 9,000,000

Sales 166.67% 15,000,000

COGS 100% 9,000,000 (15,000,000/166.67%)
GP 66.67% 6,000,000

Ending inventory, per estimate 1,000,000

Less: Undamaged inventory (150,000)
Inventory fire loss 850,000

4. Avarice Company

Inventory, beg 650,000

Purchases 3,200,000
Purchase return (75,000)
Freight in 50,000
TGAS 3,825,000
Less: Ending inventory 1,125,000
COGS 2,700,000 (4,500,000 x 60%)

Sales 100% 4,500,000

COS 60% 2,700,000 (4,500,000 x 60%)
GP 40% 1,800,000

5. Boon Company

Begininning inventory 500,000

Purchases 2,500,000
TGAS 3,000,000
Less: Ending inventory 600,000
COGS 2,400,000

Sales 100% 3,200,000

COS 75% 2,400,000 (3,200,000 x 75%)
GP 25% 800,000
Ending inventory, per estimate 600,000
Ending inventory, per physical count 500,000
Missing inventory 100,000

6. Celibacy Company

Beg inventory 650,000

Purchases 2,300,000
Purchase returns (80,000)
Freight-in 60,000
TGAS 2,930,000
Less: Ending inventory 571,000
COGS 2,359,000

Sales 100% 3,370,000

COS 70% 2,359,000 (3,370,000 x 70%)
GP 30% 1,011,000

Gross sales 3,400,000

Less: Sales return (30,000)
Net sales 3,370,000

Est. ending inventory 571,000

Ending inventory per physical count 420,000
Missing inventory 151,000

7. Delectable Company

Net sales 100% 5,200,000

COGS 75% 3,900,000 (5,200,000 x 75%)
GP 25% 1,300,000

Sales 5,600,000
Less: Sales return (400,000)
Net sales 5,200,000

8. Elusive Company

#1
Beg, inventory 1,100,000
Purchases 6,000,000
TGAS 7,100,000
Less: Ending inventory 1,500,000
COGS 5,600,000

Sales 130% 7,280,000

COGS 100% 5,600,000 (7,280,000/130%)
GP 30% 1,680,000

Est. ending inventory 1,500,000

Less: Usable damaged at cost (100,000)
Inventory fire loss 1,400,000

9. Charo Company

TGAS 1,200,000
Less: Ending inventory 120,000
COGS 1,080,000

Sales 100% 1,800,000

COS 60% 1,080,000 (1,800,000 x 60%)
GP 40% 720,000
10. Karen Company

Beg inventory 5,000,000

Purchases 26,000,000
Freight- in 2,000,000
Purchase returns and allowances (3,500,000)
Purchase discounts (1,500,000)
TGAS 28,000,000 #1
Less: Ending inventory 5,800,000
COGS 22,200,000 #2

Net sales 100% 37,000,000

COGS 60% 22,200,000 (37,000,000 x 60%) #2
GP 40% 14,800,000

Sales 40,000,000
Sales returns (3,000,000)
Net sales 37,000,000

Note: In computing the estimate ending inventory, the sales discounts and sales allowances are ignored.

#3
Estimated ending inventory 5,800,000
Less: Inventory per physical count 4,000,000
Less: Goods out on consignment 600,000 (1,000,000 x 60%)
Inventory shortage 1,200,000

11. Moderate Company

June July August

Credit sales 7,200,000 7,360,000 7,600,000
Cash sales 720,000 800,000 1,040,000
Total Sales 7,920,000 8,160,000 8,640,000

June July August

Net sales 120% 7,920,000 8,160,000 8,640,000
COGS 100% 6,600,000 6,800,000 7,200,000
GP 20% 1,320,000 1,360,000 1,440,000

COGS = Sales x Sales ratio

#4
June July August
Beg inventory 1,980,000 2,040,000 2,160,000
Purchases (squeezedd) 6,920,000
TGAS 8,960,000
Less: Ending inventory 2,040,000 2,160,000
COGS 6,600,000 6,800,000 7,200,000

Beg inventory = COGS for the month x 30%

12. Hectic Company

Beg inventory 1,800,000

Purchases 4,500,000
TGAS 6,300,000
Less: Ending inventory 2,700,000
COGS 3,600,000

Net sales 100% 6,000,000

COGS 60% 3,600,000 (6,000,000 x 60%)
GP 40% 2,400,000

Receivable turnover = Credit sales / average receivable

5 = Credit sales / [(1,100,000+1,300,000) / 2]
Credit sales = 5 x 1,200,000
Credit sales = 6,000,000
13. Vigor Company

Net sales 7,600,000

COGS 4,600,000
GP 3,000,000

Receivable turnover = Credit sales / average receivable

8 = Credit sales x [(900,000+1,000,000) / 2]
Credit sales = 8 x 950,000
Credit sales = 7,600,000

Inventory turnover = COGS / average inventory

4 = COGS / [(1,100,000+1,200,000) / 2]
COGS = 4 x 1,150,000
COGS = 4,600,000

14. Kleptomaniac Company

2016 2017
Beg inventory - 1,000,000
Purchases 5,600,000 8,000,000
Purchase return (100,000) (500,000)
TGAS 5,500,000 8,500,000
Less: Ending inventory 1,000,000 2,200,000
COGS 4,500,000 6,300,000 (refer computation below)

Sales - 2016 6,000,000

COGS - 2016 4,500,000
GP - 2016 1,500,000

GP rate - 2016 = Gross profit / Net sales

GP rate - 2016 = 1,500,000/6,000,000
GP rate - 2016 = 25%

GP rate - 2017 = 25% + 5%

GP rate - 2017 = 30%

Sales - 2017 9,000,000

COGS - 2017 6,300,000 (9,000,000 x 70%)
GP - 2017 2,700,000 (9,000,000 x 30%)

Estimated ending inventory 2,200,000

Less: Undamaged mdse (500,000 x 70%) 350,000
Damaged mdse at LCNRV 10,000
Inventory fire loss 1,840,000

Damage mdse at LCNRV

COSt (100,000 x70%) = 70,000
NRV = 10,000
LCNRV = 10,000

15. Feint Company

Accounts receivable
Beg - Collection 4,000,000
Credit sales 7,840,000 End 3,840,000
7,840,000 7,840,000

Beg inventory -
Purchases 7,000,000
TGAS 7,000,000
Less: Ending inventory 1,400,000
COGs 5,600,000

Net sales 140% 7,840,000 (5,600,000 x 140%)

COGS 100% 5,600,000
GP 40% 2,240,000
16. Paragon Company

Beg inventory 660,000

Purchases 4,240,000
TGAS 4,900,000
Less: ending inventory 700,000
COGS 4,200,000 (refer computation below)

2014 2015 2016 Total

Net sales 1,000,000 3,000,000 5,000,000 9,000,000
COGS 710,000 2,200,000 3,840,000 6,750,000
GP 290,000 800,000 1,160,000 2,250,000

Test for accuracy of GP rate:

GP rate = Gross profit / net sales

2014 2015 2016

GP rate 29% 27% 23%

Note: No pattern on the gross profit rate, therefore use the weighted average approach

GP rate = Total GP / Total Sales

GP rate = 2,250,000 / 9,000,000
GP rate = 25%

Net sales - 2017 5,600,000

COGS -2017 4,200,000 (5,60,000 x 75%)
GP - 2017 1,400,000 (5,600,000 x 25%)

Est. ending inventory 700,000

Less: partially damaged at LCNRV 25,000
Undamaged goods (60,000 x 75%) 45,000
Inventory fire loss 630,000

Partially damaged at LCNRV:

At cost (100,000 x 75%) = 75,000
At NRV = 25,000
At LCNRV = 25,000

17. Greenhorn Company

Accounts receivable
Beg 800,000 Collection 2,600,000
Credit sales 2,500,000 End 700,000
3,300,000 3,300,000

Beg inventory 1,200,000

Purchases 2,000,000
TGAS 3,200,000
Less: Ending inventory (1,100,000)
COGS 2,100,000

Net sales (Squeezed) 3,000,000

COGS 2,100,000
GP 900,000

Net total sales 3,000,000

Less: Cash sales 500,000
Credit sales 2,500,000
18. Fairy Company

2016 2017
Beg inventory 1,260,000 2,355,000
Purchases 6,450,000 3,180,000
Freight in 350,000 220,000
Purchase discounts (90,000) (45,000)
Purchase returns (120,000) (40,000)
Purchase allowances (20,000) (15,000)
TGAS 7,830,000 5,655,000
Less: Ending inventory 2,355,000 2,370,000 (squeezed)
COGS 5,475,000 3,285,000 (refer computation below)

Sales (2016) 7,500,000

COGS (2016) 5,475,000
GP (2016) 2,025,000

GP rate (2016) = Gross profit / net sales

GP rate (2016) = 2,025,000 / 7,500,000
GP rate (2016) = 27%

Sales (2017) 4,500,000

COGS (2017) 3,285,000 (4,500,000 x 73%)
GP (2017) 1,215,000 (4,500,000 x 27%)

19. Braveheart Company

Beg inventory 1,500,000

Purchases 5,500,000
TGAS 7,000,000
Less: Ending inventory 1,180,000
COGS 5,820,000

Accounts receivable
Beg 700,000 Collection 8,400,000
Credit sales -
squeezed) 8,800,000 End 1,100,000
9,500,000 9,500,000

Cash sales 900,000

Credit sales 8,800,000
Total sales 9,700,000

Net sales 100% 9,700,000

COGS 60% 5,820,000 (9,700,000 x 60%)
GP 40% 3,880,000 (9,700,000 x 40%)

Inventory loss from the storm surge (entire inventory) 1,180,000

20. Unanimous Company

2016 2017
Beg inventory 2,000,000 1,200,000
Purchases 5,000,000 5,200,000
Purchase returns and allowances (200,000) (240,000)
TGAS 6,800,000 6,160,000
Less: Ending inventory 1,200,000 700,000
COGS 5,600,000 5,460,000 (refer computation below)

Sales - 2016 8,200,000

Sales returns and allowances (200,000)
Net sales - 2016 8,000,000

Net sales - 2016 8,000,000

COGS 5,600,000
GP 2,400,000

GP rate - 2016 = Gross profit / net sales

GP rate - 2016 = 2,400,000 / 8,000,000
GP rate - 2016 = 30%
Sales - 2017 7,880,000
Sales returns and allowances (80,000)
Net sales - 2017 7,800,000

Net sales - 2017 7,800,000

COGS 5,460,000 (7,800,000 x 70%)
GP 2,340,000 (7,800,000 x 30%)

Estimated ending inventory 700,000

Less: Unstolen inventory (100,000)
Stolen inventory 600,000