A company's warehouse was destroyed by a tornado on March 15. The following information was salvaged from the ruins: 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?

Question

Quizplus · Accepted Answer

The estimated cost of the lost inventory is $25,995. This is calculated as follows:Net sales = Sales - Sales returns = $55,000 - $700 = $54,300Cost of goods sold = Net sales / (1 - Gross profit ratio) = $54,300 / (1 - 0.35) = $35,493Estimated cost of lost inventory = Beginning inventory + Purchases - Cost of goods sold = $28,000 + $17,000 - $35,493 = $25,995

A Company's Warehouse Was Destroyed by a Tornado on March