Gross profit rate based on computing the COGS

Vitale's picture
Rank: Chimp | banana points 12

Hello!

Please, take a look at the screen shot from the exercise. I have computed the Gross Profit rate, which according to the book shall be 38%. I get this rate **only if ** I don't deduct Purchase discounts and Freight-in from the Cost of goods available for sale.

Please, help me to understand why these items are not included in computations - I think they do decrease the amount of Cost of goods available for sale, because they do decrease the amount of Inventory on the balance sheet under periodic system, and hence have to be included in computations thus decreasing the amount of goods available for sale.

Here are my computations:
1 version:
Cost of goods available for sale = 32,000 + 389,000 - 13,300 = 407,700
Ending inventory = 36,000
COGS = 407,700 - 36,000 = 371,700

Gross Profit = 600,000 - 371,700 = 228,300
Gross Profit rate = 228,300 / 600,000 = 38%

2 version:
Cost of goods available for sale = 32,000 + 389,000 - 13,300 -8,500 - 8,800= 390,400
Ending inventory = 36,000
COGS = 390,400 - 36,000 = 354,400

Gross Profit = 600,000 - 354,400 = 245,600
Gross Profit rate = 245,600 / 600,000 = 41%

Thank you very much!