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13 September, 06:42

Lew Co. sold 200,000 corrugated boxes for $2 each. Lew's cost was $1 per unit. The sales agreement gave the customer the right to return up to 60% of the boxes within the first six months, provided an appropriate reason was given. It was immediately determined, with appropriate reason, that 5% of the boxes would be returned. Lew absorbed an additional $10,000 to process the returns and expects to resell the boxes.

What amount should Lew report as operating profit from this transaction?

a) $170,000

b) $179,500

c) $180,000

d) $200,000

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  1. 13 September, 06:48
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    a) $170,000

    Explanation:

    Total Sales = 200,000 X 2 = 400,000

    -Sales Return = 400,000 X 5% = 20,000

    =Net Sales = 380,000

    -Cost of corrugated boxes = 200,000 X 1 = 200,000

    =Gross Margin = 180,000

    -Additional Cost = 10,000

    =Operating profit = 170,000
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