On January 1, 2024, Sandhill Retailers had inventory of $49,700. On December 31, 2024, total inventory on hand was $66,500.

Sandhill reported the following account balances on december 31 

Freight in 3000













Purchases

509,600

Purchase returns and allowances

1800

Purchase discounts

5700

sales

840100

Sales discount   4100

Sales returns and allowances 10400




Calculate Sandhill Retailers' 2024 gross profit.




(b)

Calculate Sandhill Retailers' 2024 operating expenses if profit for the year is $129,500 and there are no non-operating activities.

Operating expenses

To calculate Sandhill Retailers' 2024 gross profit and operating expenses, we'll follow these steps:

### Step 1: Calculate the Cost of Goods Sold (COGS)

First, we need to determine the Cost of Goods Sold (COGS) for the year. The formula for COGS is:

\[ \text{COGS} = \text{Beginning Inventory} + \text{Net Purchases} - \text{Ending Inventory} \]

Where Net Purchases are calculated as follows:

\[ \text{Net Purchases} = \text{Purchases} + \text{Freight In} - \text{Purchase Returns and Allowances} - \text{Purchase Discounts} \]

Given:
- Beginning Inventory: $49,700
- Purchases: $509,600
- Freight In: $3,000
- Purchase Returns and Allowances: $1,800
- Purchase Discounts: $5,700
- Ending Inventory: $66,500

So,

\[ \text{Net Purchases} = \$509,600 + \$3,000 - \$1,800 - \$5,700 = \$505,100 \]

Now, calculate the COGS:

\[ \text{COGS} = \$49,700 + \$505,100 - \$66,500 = \$488,300 \]

### Step 2: Calculate Gross Profit

Gross Profit is calculated using the formula:

\[ \text{Gross Profit} = \text{Net Sales} - \text{COGS} \]

Where Net Sales are:

\[ \text{Net Sales} = \text{Sales} - \text{Sales Returns and Allowances} - \text{Sales Discounts} \]

Given:
- Sales: $840,100
- Sales Returns and Allowances: $10,400
- Sales Discounts: $4,100

So,

\[ \text{Net Sales} = \$840,100 - \$10,400 - \$4,100 = \$825,600 \]

Now, calculate the Gross Profit:

\[ \text{Gross Profit} = \$825,600 - \$488,300 = \$337,300 \]

### Step 3: Calculate Operating Expenses

Operating Expenses are calculated using the formula:

\[ \text{Operating Expenses} = \text{Gross Profit} - \text{Net Income} \]

Given:
- Net Income (Profit for the year): $129,500

So,

\[ \text{Operating Expenses} = \$337,300 - \$129,500 = \$207,800 \]

### Summary of Results

(a) Sandhill Retailers' 2024 Gross Profit:
\[ \$337,300 \]

(b) Sandhill Retailers' 2024 Operating Expenses:
\[ \$207,800 \]

Would you like more details or have any questions about these calculations? Here are some questions you might want to explore:

1. How is net income different from gross profit?
2. What are some examples of operating expenses?
3. How do purchase returns and allowances affect net purchases?
4. Why is it important to separate operating and non-operating activities?
5. Can freight costs significantly impact the cost of goods sold?

**Tip:** Always double-check your calculations and ensure all relevant components are included to avoid errors in financial analysis.

Learn how to calculate Sandhill Retailers' 2024 gross profit and operating expenses step-by-step. Understand the concepts of cost of goods sold (COGS), net sales, gross profit, and operating expenses using real financial data. Suitable for advanced accounting students and professionals.

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