91. Figuring cost. In figuring cost, a merchant must consider the following items: 1. Prime, or net, cost. This includes the first cost, or the amount actually paid for merchandise. 2. Second, or manufacturer's, cost. This includes the manufacturer's cost, if the merchant is the manufacturer, the wear and tear on machinery, wages of factory hands, lighting, heating, etc. 3. Third cost, or selling cost. This includes the salaries and expense of sales people, freight and handling of goods, advertising, etc. 4. Fourth, or overhead charges. This includes rent and insurance, lighting, heating, taxes, office equipment, etc. 5. The total cost is the prime cost, plus all the expenses of the purchase, and is the gross cost. Problems (1) The inventory of a stock at the beginning of the year was $2800. The purchases during the year were $17,600. At the close of the year the inventory showed a stock of $5400 unsold. What was the cost of the goods sold? The sales for the year were $22,500. What was the gross profit? What was the per cent of gross profit? Solution: Expenses or Costs for Year Inventory at first of year, Mdse. Purchases during the year, Mdse. Total amount of ex- Net cost of sales, Income or Receipts for Year =$ 2,800. Sales of Mdse. =$17,600. Net cost of sales = $20,400. Profit on Mdse. = $22,500. =$15,000. =$ 7,500. =$ 5,400. $7,500 $15,000 = .50=50%= = $15,000. (2) a. Complete total cost of purchases in the following table. 92. Depreciation losses. The decline in the value of property, or expense in business caused by the loss in value, is depreciation. 1. Estimating the amount of depreciation in property may be done in several ways, but the methods most commonly used are as follows: (1) A fixed rate, reckoned each year, on the original value of the property. (2) A decreasing rate, reckoned each year, on the original value of the property. (3) A fixed rate reckoned on a decreasing value. The first method is the simplest but would ultimately represent property as of no value. ILLUSTRATIVE EXAMPLE: A house is bought for $10,000; when the house has been occupied for ten years its value may be $4600, which shows a decrease in value, or depreciation, of $5400; this is a yearly loss or depreciation of $540. $540 is 53% of $10,000; therefore 53% of the original value of the house is charged each year as depreciation. 2. Reckoning a decreasing rate on the original value is based on the principle that the largest amount of depreciation should be charged the first year, because during this year greater depreciation occurs than during any later year. Then the depreciation of each year after is gradually reduced. Illustration: A sewing machine may only be used a short time and must be sold as 66 'a second-hand machine." The owner incurs much greater proportional loss from its use the first year than he does for the second year. 3. The method of estimating the depreciation from a fixed rate reckoned on a decreasing value is as follows: The original value of a piece of property is $2500, and the rate of depreciation is 10% yearly. What is the property worth at the end of three years? What is the annual amount of depreciation? What is the decreased value each year? $2500 - 250 $2500.00 = Original Value. 10 Rate of Depreciation. $250.00 $2250 Decreased value, beginning of second year. .10 $225 Depreciation second year. $2250 - 225 = $2025 Decreased value, beginning of third year. $2025.00 - 202.50 $1822.50 Decreased value, at end of third year or beginning of fourth year. Problems (1) Find by first method the amount charged off annually for depreciation from the following data: (2) Compute by third method the annual depreciation at 6% and the decreased value each year, of five years' depreciation on property costing $12,600. (3) An automobile which cost $3600 was sold after five years for $900. What per cent should be charged annually for depreciation, and what was the amount of the annual depreciation? 93. Buying and selling expenses. Expenses in trading include: (1) The buying expenses. (2) The selling expenses. 1. The buying expenses include all the costs of buying merchandise, and are added to the original price of goods to fix the total cost. 2. The prime cost of merchandise is the original, or purchase price; the total cost of merchandise is the prime cost, plus the buying expenses. 3. All expenses connected with the sale of merchandise, (advertising, rent, heat, and light of building, salaries, depreciation, etc.) are selling expenses. The per cent of selling expenses is found by dividing the selling expenses by the gross sales. ILLUSTRATIVE EXAMPLE: A merchant bought merchandise during the year amounting to $28,500.00. This was the prime cost. The cost of placing this merchandise in the department stores (freight, custom duties, employees, etc.) was $1965. The total cost of the merchandise purchased is: $28,500.00 Prime Cost. 1,965.00 Buying Expenses. $30,465.00 Total Cost. Problems (1) The prime cost of merchandise is $48,250; the buying expenses are $1930. What is the total cost? What per cent of the prime cost are the buying expenses? (2) Note paper is quoted at the following prices: $3.75 a pound less 2%, or $4 a pound less 6%. Which is the better price and how much better? How much will be saved by buying 19 pounds at the cheaper quotations? (3) A merchant's gross sales during one year are $156,218; the selling expenses for the same time are $37,492.32. What per cent of the gross sales are the selling expenses? Solution: Selling expenses, $37,492.32÷$156,218. Gross sales= 24% of selling expenses. (4) Some of the usual and necessary expenses connected with the carrying on of a department store, or of a department in a department store, are quoted below. Find what per cent each item of expense is of the gross sales. a. What are the total selling expenses in the above list? c. The cost of the goods sold is $16,820. What is the gross profit? What is the net profit? d. What is the average or standard per cent of selling cost on gross sales? e. Which of these per cents are larger than the average? Which are smaller? f. What does a merchant learn about his business by a study of these comparisons of per cent expenses? g. Which item of expense shows the greatest loss to the business? h. Losses that may be prevented or checked are sometimes called "leaks" in business. Do you see any "leaks" in the study of the above per cent comparisons? i. If the gross sales were $60,000.00 and the selling expenses were $15,000.00, what was the per cent of selling expenses? j. If the selling expenses were reduced to $12,000.00 without reducing the gross sales, what would be the per cent of selling expenses? |