Callahan Computers stores its inventory in a warehouse that burned to the ground in late November,2012.Their sales office was at a different location.In order to file a claim with their insurance,the owners ask you to estimate the inventory in the warehouse.The following information is available: $$\begin{array} { | l | r |}
\hline \text { Beginning inventory } & \$ 375,500 \
\hline \text { Purchases through November 30 } & 470,250 \
\hline \text { Net sales revenue through November 31 } & 793,000 \
\hline
\end{array}$$ The company's gross profit has historically been 40% of Net sales revenue.Estimate the value of the inventory destroyed in the fire using the gross profit method.

Question

Callahan Computers stores its inventory in a warehouse that burned to the ground in late November,2012.Their sales office was at a different location.In order to file a claim with their insurance,the owners ask you to estimate the inventory in the warehouse.The following information is available: $$\begin{array} { | l | r |} 
\hline \text { Beginning inventory } & \$ 375,500 \
\hline \text { Purchases through November 30 } & 470,250 \
\hline \text { Net sales revenue through November 31 } & 793,000 \
\hline
\end{array}$$ The company's gross profit has historically been 40% of Net sales revenue.Estimate the value of the inventory destroyed in the fire using the gross profit method.

Quizplus · Accepted Answer

To estimate the inventory destroyed in the fire using the gross profit method, follow these steps:1. Calculate the cost of goods sold (COGS):   - Gross profit is 40% of net sales revenue, so COGS is 60% of net sales revenue (100% - 40% = 60%).   - COGS = 60% of $793,000 = 0.60 * $793,000 = $475,800.2. Estimate the ending inventory:   - Beginning inventory + Purchases - COGS = Ending inventory (inventory destroyed in the fire).   - $375,500 (Beginning inventory) + $470,250 (Purchases) - $475,800 (COGS) = $369,950.Therefore, the estimated value of the inventory destroyed in the fire is $369,950.

Callahan Computers Stores Its Inventory in a Warehouse That Burned