Question

soy NAME B) Beavis Inc. had some inventory lost in a fire on October 15. To file an insurance claim, th company must estimate its October 15 inventory using the gross profit method. For the past years Beavis's gross profit averaged 41% of net sales. Its inventory records revca Inventory, October 1 S 37,700 Transactions, October 1-15: Purchases 490,800 Purchase discounts 17,000 Purchase returns 70,900 Sales 660,000 REQUIRED: Estimate the cost of the lost inventory using the gross profit method.

Answer 1

Estimation of the cost of lost inventory using the gross profit method:

Cost of lost inventory i.e. ending inventory will be calculating by subtracting cost of goods sold from the cost of goods available for sale.

So, we need to find out the cost of goods sold and the cost of goods available for sale.

Cost of goods sold = Sales - Gross profit

Cost of goods sold = 660,000 - 41% of sales = 660,000 - 270,600 = $389,400

Cost of goods available for sale = Beginning inventory + Purchases

(Total purchases = Purchases - Purchase discounts- Purchase returns = 490,800 - 17,000 - 70,900 = 402,900 )

Cost of goods available for sale = 37,700 + 402,900 = $440,600

Cost of lost inventory = Cost of goods available for sale - Cost of goods sold

Cost of lost inventory = 440,600 - 389,400 = $51,200