Trekking Company's inventory in its River Oaks store was destroyed by a flood. Its gross profit ratio was 65% and net sales were $30,000. The estimated cost of goods available for sale was $32,500. The estimated value of the lost inventory was $18,000.

Question

Quizplus · Accepted Answer

Given the gross profit ratio of 65%, this means the cost of goods sold (COGS) is 35% of net sales. With net sales of $30,000, COGS is $30,000 * 35% = $10,500. The estimated cost of goods available for sale is $32,500, which includes the beginning inventory plus purchases minus the COGS. To find the estimated value of the lost inventory, subtract the COGS from the cost of goods available for sale: $32,500 - $10,500 = $22,000, not $18,000.

Trekking Company's Inventory in Its River Oaks Store Was Destroyed