Estimate ending inventories using gross profit method- given beginning inventory
ID: 2592639 • Letter: E
Question
Estimate ending inventories using gross profit method- given beginning inventory, net purchases, net sales, and % markup on cost, gross margin given all information
On August 31, a hurricane destroyed a retail location of Vinny's clothing including the entire inventory on hand at the location. The inventory on hand as of June 30 totaled $960,000. Since June 30 until the time of the hurricane, the company made purchases of $255,000 and had sales of $750,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed?
Explanation / Answer
Solution :-
Cost of beginning inventory. $960,000
Purchases net at cost. $255,000
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Cost of goods available for sale. $12,15,000
Less: Cost of goods sold:
Sales: $750,000
Less:Estimated Gross Profit
Of 40% on sales. -$300,000
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Estimated Cost of Goods Sold. $450,000
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Estimated Cost of Closing Inventory $765,000.
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