Allocating A Lump-sum Purchase Price in a Bulk Purchase
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Exercise 9-8
During 2014, Pretenders Furniture Company purchases a carload of wicker chairs. The manufacturer sells the chairs to Pretenders for a lump sum of $63,000 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 400 $99
Armchairs 200 88
Straight chairs 1,000 55
During 2014, Pretenders sells 100 lounge chairs, 120 armchairs, and 110 straight chairs.
What is the amount of gross profit realized during 2014? What is the amount of inventory of unsold straight chairs on December 31, 2014? (Round cost per chair to 2 decimal places, e.g. 78.25 and final answer to 0 decimal places, e.g. 5,845.)
Gross profit realized during 2014 $
Amount of inventory of unsold straight chairs $
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Solution Summary
This solution illustrates how to allocate a bulk purchase price among its components using each component's relative sales value.
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