Use gross profit ratio to calculate inventory loss Franklin Co. has experienced gross profit ratios for 2010, 2009, and 2008 of 33%, 30%, and 31%, respectively. On April 3, 2011, the firm’s plant and all of its inventory were destroyed by a tornado. Accounting records for 2011, which were available because they were stored in a protected vault, showed the following:
Sales from January 1 thru April 2 | $142,680 |
January 1 inventory amount | 63,590 |
Purchases of inventory from |
|
January 1 thru April 2 | 118,652 |
Required:
Calculate the amount of the insurance claim to be filed for the inventory destroyed in the tornado. (Hint: Use the cost of goods sold model and a gross profit ratio that will result in the largest claim.)
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