On March 15, a fire destroyed Interlock Company's entire retail inventory.The inventory on hand as of January 1 totaled $1,650,000.From January 1 through the time of the fire, the company made purchases of $683,000, incurred freight-in of $78,000, and had sales of $1,210,000.Assuming the rate of gross profit to selling price is 30%, what is the approximate value of the inventory that was destroyed?

Question

Quizplus · Accepted Answer

The first step is to calculate the cost of goods available for sale:
Beginning inventory = $1,650,000
Purchases = $683,000
Freight-in = $78,000
Cost of goods available for sale = $2,411,000

Next, we need to calculate the gross profit:
Gross profit = Selling price - Cost of goods sold
Gross profit rate = Gross profit ÷ Selling price
Gross profit rate = 30%

We can rearrange the formula to solve for the cost of goods sold:
Gross profit rate = Gross profit ÷ Selling price
Gross profit ÷ Selling price = 30%
Gross profit = 0.3 × Selling price
Cost of goods sold = Selling price - Gross profit
Cost of goods sold = Selling price - 0.3 × Selling price
Cost of goods sold = 0.7 × Selling price

Now, we can use the cost of goods available for sale and cost of goods sold to calculate the approximate value of the inventory that was destroyed:
Ending inventory = Cost of goods available for sale - Cost of goods sold
Ending inventory = $2,411,000 - (0.7 × $1,210,000)
Ending inventory = $1,564,000

Therefore, the approximate value of the inventory that was destroyed is $1,564,000. The answer is C.

On March 15, a Fire Destroyed Interlock Company's Entire Retail