Collins Computers stored its inventory in a warehouse which suffered a fire in late November, 2014. Their sales office was at a different location. In order to file a claim with the insurance company, the owners ask you to estimate the inventory in the warehouse. The following information is available: $$\begin{array} { | l | r | }
\hline \text { Beginning inventory for November } & \$ 375,500 \
\hline \text { Purchases through November } 30 & 470,250 \
\hline \text { Net sales revenue through November } 31 & 793,000 \
\hline
\end{array}$$ 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

Collins Computers stored its inventory in a warehouse which suffered a fire in late November, 2014. Their sales office was at a different location. In order to file a claim with the insurance company, the owners ask you to estimate the inventory in the warehouse. The following information is available: $$\begin{array} { | l | r | } 
\hline \text { Beginning inventory for November } & \$ 375,500 \
\hline \text { Purchases through November } 30 & 470,250 \
\hline \text { Net sales revenue through November } 31 & 793,000 \
\hline
\end{array}$$ 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

The cost of goods sold (COGS) is 60% of net sales revenue (100% - 40% gross profit), which is $793,000 * 0.60 = $475,800. The estimated ending inventory is calculated as: Beginning inventory + Purchases - COGS = $375,500 + $470,250 - $475,800 = $369,950.

Collins Computers Stored Its Inventory in a Warehouse Which Suffered