On October 31, a fire destroyed PH Inc.'s entire retail inventory. The inventory on hand as of January 1 totaled $2,040,000. From January 1 through the time of the fire, the company made purchases of $495,000 and had sales of $1,080,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed?
A) $2,040,000.
B) $2,019,000.
C) $1,455,000.
D) $1,887,000.

Question

Quizplus · Accepted Answer

The cost of goods sold is 60% of sales (100% - 40% gross profit). Therefore, the cost of goods sold is $1,080,000 * 60% = $648,000. The cost of inventory available for sale is $2,040,000 (beginning inventory) + $495,000 (purchases) = $2,535,000. The inventory destroyed is $2,535,000 - $648,000 = $1,887,000.

On October 31, a Fire Destroyed PH Inc