Riverbottom Liquidators was wiped out by a recent flood when all it's inventory was observed floating down the river.On the day after the flood,management filed an insurance claim on the inventory that was totally destroyed.From records maintained elsewhere it was established: $$\begin{array} { l c }
\text { Sales revenue (to date this period) } & \$ 700000 \
\text { Beginning inventory } & \$ 90000 \
\text { Purchases (so far this period) } & \$ 600000 \
\text { Historical gross profit percentage } & 60 \%
\end{array}$$ Assuming the historical gross profit was maintained during the current period what was the cost of inventory lost in the flood?

Question

Riverbottom Liquidators was wiped out by a recent flood when all it's inventory was observed floating down the river.On the day after the flood,management filed an insurance claim on the inventory that was totally destroyed.From records maintained elsewhere it was established: $$\begin{array} { l c } 
\text { Sales revenue (to date this period) } & \$ 700000 \
\text { Beginning inventory } & \$ 90000 \
\text { Purchases (so far this period) } & \$ 600000 \
\text { Historical gross profit percentage } & 60 \%
\end{array}$$ Assuming the historical gross profit was maintained during the current period what was the cost of inventory lost in the flood?

Quizplus · Accepted Answer

To find the cost of inventory lost, first calculate the cost of goods sold (COGS) using the historical gross profit percentage. Gross profit is 60%, so COGS is 40% of sales revenue: $700,000 * 40% = $280,000. The cost of goods available for sale is the beginning inventory plus purchases: $90,000 + $600,000 = $690,000. Subtract COGS from the cost of goods available for sale to find the cost of inventory lost: $690,000 - $280,000 = $410,000.

Riverbottom Liquidators Was Wiped Out by a Recent Flood When