Question

A companys warehouse contents were destroyed by a flood on September 12. The following information was the only information that was salveged: 1 Inventory, beginning: $29,800 2 Purchases for the perlod: $18,800 3. Sales for the period: $56,800 4 Sales returns for the perlod: $880 The companys average gross profit ratio 1.22%. What Is the estimated cost of the lost inventory?
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Answer #1

Since the warehouse was destroyed, the goods in warehouse has been destroyed.

Sales for the period= $56,800-$880(sales return)

= $55,920

Gross profit ratio = 22%

Cost of goods sold = (55,920*100)/122

= $45,836

Inventory after sales = beginning inventory+ purchases- cost of goods sold

= $ 29,800+ $ 18,800 - $ 45,836

= $ 48,600-$45,836

= $ 2,764

The inventory kept in the warehouse was of $ 2,764 which were destroyed by a flood.

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