Answered: pus sells sports goods and clothing…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Opus sells sports goods and clothing through a chain of retail outlets. It offers customers a full refund facility for any goods returned within 28 days of their purchase provided they are unused and in their original packaging. In addition, all goods carry a warranty against manufacturing defects for 12 months from their date of purchase. For most goods, the manufacturer underwrites this warranty such that Opus is credited with the cost of goods that are returned as faulty. Goods purchased from one manufacturer, Header, are sold to Opus at a negotiated discount which is designed to compensate Opus for manufacturing faults of these goods.Opus makes a uniform mark up on cost of 25% on all goods it sells, except for those supplied from Header which it makes a mark up on cost of 40%. Sales of goods manufactured by Header consistently account for 20% of all Opus’ sales. Sales in the last 28 days of the trading year to December 31, 2022 were P1,750,000. Past trends reliably indicate that 10% of all goods are returned under the 28 day return facility. These are not faulty goods. Of these, 70% are later sold at the normal selling price and the remaining 30% are sold as “sale” items at half the normal retail price. In addition to the above expected returns, an estimated P160,000, at selling price, of the goods sold during the year will have manufacturing defects and have yet to be returned by customers. Goods returned as faulty have no resale value. 1. Compute the provision that the company is required to make as of December 31, 2022 for goods that are likely to be faulty. 2. Compute the provision that the company is required to make as of December 31, 2022 for goods subject to the 28 day return policy.

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