Homework Answers
First we will calculate gross profit:
Gross Profit = Sales * 20 / 100
Gross Profit = $9200000 * 20 / 100 = $1840000
Next, we will calculate the value of inventory lost by fire as per below:
Sales = Beginning inventory + Purchases + Freight in - inventory loss by fire + Gross Profit
Putting the values in the above equation, we get,
$9200000 = $2000000 + $5900000 + $500000 - Inventory loss by fire + $1840000
$9200000 = $10240000 - Inventory loss by fire.
Inventory loss by fire = $10240000 - $9200000
Inventory loss by fire = $1040000
Now, we will calculate the cost of inventory destroyed by fire as per below:
Cost of inventory destroyed by fire = $1040000 * 80 / 100 = $832000
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