Best Beauties Ltd. had a fire at its warehouse and was trying to determine the cost of the inventory lost. For the year to date, sales had been $525,000, opening inventory was $25,000, purchases to date were $198,000, the cost-to-sales ratio is normally 60%. Inventory not damaged in the fire was $18,000. What was the cost of the inventory damaged in the fire?

Question

Quizplus · Accepted Answer

Cost of goods sold = Sales x Cost-to-sales ratio = $525,000 x 60% = $315,000Closing inventory = Opening inventory + Purchases - Cost of goods sold = $25,000 + $198,000 - $315,000 = $18,000Inventory damaged in the fire = Closing inventory - Inventory not damaged in the fire = $18,000 - $18,000 = $0