Smith Distributors, Inc., supplies ice cream shops with various toppings for mak

Question

Smith Distributors, Inc., supplies ice cream shops with various toppings for making sundaes. On November 17, 2018, a fire resulted in the loss of all of the toppings stored in one section of the warehouse. The company must provide its insurance company with an estimate of the amount of inventory lost. The following information is available from the company's accounting records:

Required:
1. Calculate the estimated cost of each of the toppings lost in the fire.

Fruit
Toppings Marshmallow
Toppings Chocolate
Toppings Inventory, January 1, 2018 $ 25,000 $ 7,500 $ 3,500 Net purchases through Nov. 17 175,000 41,000 12,500 Net sales through Nov. 17 225,000 60,000 20,500 Historical gross profit ratio 18 % 25 % 30 %

Explanation / Answer

Estimated cost of each of the toppings lost in the fire = Inventory, January 1, 2018 + Cost of goods sold - Purchases

Fruit toppings Marshmallow toppings Choclate toppings Cost of goods sold 184,500 (225,000*82%) 45,000 (60,000*75%) 14,350 (20,500*70%)

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