A company's warehouse contents were destroyed by a flood on September 12. The following information was the only information that was salvaged: 1. Inventory, beginning: $28,000
2) Purchases for the period: $17,000
3) Sales for the period: $55,000
4) Sales returns for the period: $700
The company's average gross profit ratio is 35%. What is the estimated cost of the lost inventory?

Question

Quizplus · Accepted Answer

First, we need to calculate the cost of goods sold (COGS) for the period. To do so, we need to subtract sales returns from sales for the period:

COGS = Sales - Sales Returns
COGS = $55,000 - $700
COGS = $54,300

Next, we can use the average gross profit ratio to estimate the cost of the lost inventory. The formula for calculating COGS using the gross profit ratio is:

COGS = Sales - Gross Profit

We can rearrange this formula to solve for the cost of the lost inventory:

Gross Profit = Sales - COGS
Gross Profit = $55,000 - $54,300
Gross Profit = $700

Cost of Lost Inventory = Inventory, beginning + Purchases - COGS - Gross Profit
Cost of Lost Inventory = $28,000 + $17,000 - $54,300 - $700
Cost of Lost Inventory = $9,705

Therefore, the best choice is B, $9,705.

A Company's Warehouse Contents Were Destroyed by a Flood on September