Question

Dusty Balloons sold 20,000 bags of party balloons during the month of June at a price of $15/bag (cost/bag = $9.30).

The company offers a full refund to unsatisfied customers for any product returned within 30 days from the date of purchase.

Based on historical experience, Dusty Balloons expects that 12% of sales will be returned.

How much Revenue should Dusty Balloons recognize in June?

How much Estimated Inventory Returns should Dusty Balloons recognize in June?

How much Cost of Goods Sold should Dusty Balloons recognize in June?

For the revenue part, I already know what the answer is but I do not understand how to get it.

Please help.

Answer 1

1. Revenue to be recognised in June

Total sales :-   $ 20,000 * 15   = $ 3,00,000

Provision for Expected return :- $ 3,00,000 * 0.12 = ($ 36,000)

Revenue to be recognised = $ 3,00,000 - $ 36,000

= $ 2,64,000

2. Expected Inventory Return to be reconised in June

Expected Inventory Return to be recognised :-

Sales $ 3,00,000 *0.12 = $ 36, 000

3. Cost of Goods Sold to be Recognised :-

Cost of Goods Sold = $ 20000 * 9.30 = $ 1,86,000

4. Net Profit or Contribution of June :-

Sales 3,00,000

Less: Expected Return (36,000)

Net Sales 2,64,000

less : COGS (1,86,000)

Net Profit 78,000