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

Question

Quizplus · Accepted Answer

The gross profit method estimates the cost of lost inventory by multiplying the sales for the period by the average gross profit ratio. In this case, the sales for the period are $55,000 and the average gross profit ratio is 35%. Therefore, the estimated cost of the lost inventory is $55,000 x 35% = $19,250. However, since the sales returns for the period are $700, the estimated cost of the lost inventory is reduced by this amount, resulting in an estimated cost of $19,250 - $700 = $18,550.

A Flood Destroyed a Company's Warehouse Contents on September 12