Question

Indira Melissa decided to sell donuts in an effort to raise funds for a 2021 summer vacation to Italy. Indira went to Dunkin Donuts and spent $300 to purchase 300 donuts. Because she was buying in large quantities, Dunkin Donuts sold each donut to her for $1.00 each. During the week, Indira sold 175 donuts at $2.50 each in front of the campus bookstore at her university. A few of her friends and classmates bought donuts from her and so she gave them discounts totaling $30. Unfortunately, 7 students didn’t enjoy the flavor of their donuts and so they returned it to Indira. Because she was using her university’s facilities, she had to pay a rental fee of $50 to the university. She had a friend of hers, Link, who helped her sell and advertise the donut sale. Link charged her $40 for his work. Calculate the following:

1. COGS = _________________
2. Sales Revenue = __________________
3. Net Sales = ______________
4. Gross Profit = ______________
5. Net Income = _______________

Answer 1

Solution:

a)Calculation of Cost of Goods sold(COGS)

COGS is the purchase price of goods sold and any conversion cost incurred.In the given case,the goods sold is finished goods and hence there is conversion cost.Thus COGS is;

=Quantity sold*Purchase Price

=175 donuts*$1=$175

b)Calculation of sales revenue

Sales Revenue=Quantity sold*Sale price

=175 donuts*$2.50

=$437.50

c)Net Sales=Sales revenue-discount-return

=$437.50-$30-(7*2.50)=$390

d)Gross Profit=Net Sales-COGS

=$390-$175

=$215

e)Net Income=Gross Profit-Rent-Link's fee

=$215-$50-$40

=$125