During 2020, Pretenders Furniture Company purchases a carload of wicker chairs. The manufacturer sells the chairs to Pretenders for a lump sum of $59,850 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 $90

Armchairs 300 80

Straight chairs 700 50

During 2020, Pretenders sells 200 lounge chairs, 100 armchairs, and 120 straight chairs.

What is the amount of gross profit realized during 2020? What is the amount of inventory of unsold straight chairs on December 31, 2020?

1. Gross profit realized during 2020 = $8645

2. The amount of inventory of unsold straight chairs = $29000

Explanation:

1. In 2020 Pretenders Furniture Company purchases a carload of wicker chairs at a cost of $59850 lump sum

The total number of chairs purchased per type is;

Lounge chairs 400

Armchairs 300

Straight chairs 700

Total number of chairs purchased = 400+300+700 = 1400 chairs

In 2020, Pretenders sells

Lounge chairs 200 at $90 each = 200*90=$18000

Armchairs 100 at $80 each = 100*80 = $ 8000

Straight chairs 120 at $50 each = 120*50 = $600

Total selling price = $18000+$8000+600=$26600

Total number of chairs sold = 200+100+120 = 420 chairs

Estimating the lump sum amount that 420 chairs could generate to the same manufacturer;

For 1400 chairs = $59850 - --lump sum amount

For 420 chairs=? - --apply cross product

(420*59850) / 1400 = $17955

Selling price for 420 chairs = $26600

Gross profit realized during 2020 = $26600-$17955 = $8645

2. The amount of inventory of unsold straight chairs is the value of the inventory using the market value during that effective time.

The market value for straight chair = $50

Straight chairs remaining 580 at $50 each = 580*50 = $29000