Financial & Managerial Accounting 17th Edition by Jan Williams ,Susan Haka,Mark Bettner,Joseph Carcello

تمرين 39

Evaluating Profitability
Big Oak Lumber is a lumber yard on Angel Island. Some of Big Oak's transactions during the current year are as follows:
Instructions
a. Prepare journal entries to record these transactions and events in the accounting records of Big Oak Lumber. (The company uses a perpetual inventory system.)
b. Prepare a partial income statement showing the company's gross profit for the year. (Net sales for the year amount to $l, 422,000.)
c. Big Oak purchases merchandise inventory at the same wholesale prices as other lumber yards. Because of its remote location the company must pay between $8,000 and $18,000 per year in extra transportation charges to receive delivery of merchandise. (These additional charges are included in the amount shown as cost of goods sold.)
Assume that an index of key business ratios in your library shows lumber yards of Big Oak's approximate size (in total assets) average net sales of $1 million per year and a gross profit rate of 22 percent.
Is Big Oak able to pass its extra transportation costs on to its customers? Does the business appear to suffer or benefit financially from its remote location? Explain your reasoning and support your conclusions with specific accounting data comparing the operations of Big Oak Lumber with the industry averages.