Question

On April 24 of the current year, The Memphis Pecan Company experienced a tornado that destroyed the company's entire inventory. At the beginning of April, the company reported beginning inventory of $227,750. Inventory purchased during April (until the date of the tornado) was $198,800. Sales for the month of April through April 24 were $643,500. Assuming the company's typical gross profit ratio is 50%, estimate the amount of inventory destroyed in the tornado.

Answer 1

Computation of inventory value destroyed at the ending is:

Inventory value destroyed at the ending = Inventory value at the beginning + Value of purchases during April – Cost of goods sold

= $227,750 + $198,800 - $321,750

= $104,800

Hence, the Inventory value destroyed at the ending is $104,800.

Working Note:

1.

Computation of gross profit is:

Gross profit = Value of sales * Gross profit ratio

= $643,500 * 50%

= $321,750

Hence, the gross profit is $321,750.

2.

Computation of cost of goods sold is:

Cost of goods sold = Value of sales – Gross profit

= $643,500 - $321,750

= $321,750

Hence, the cost of goods sold is $321,750.