Question

Berta Company recently lost its entire inventory in a fire. The following information is available from its accounting records: Beginning inventory: $1,000; purchases: $13,000; net sales: $20,000. The company's average gross profit percentage is 40%. Using the gross profit method, a reasonable estimate of cost of goods sold for this past period would be?

Answer 1

To estimate the cost of goods sold for Berta Company using the gross profit method, we calculate the estimated gross profit by taking 40% of the net sales, and deduce it from the net sales. The estimated cost of goods sold is thus $12,000.

Step-by-step explanation:

The question involves estimating the cost of goods sold (COGS) using the gross profit method, which is a business concept in the field of accounting. To calculate the cost of goods sold using the gross profit method, we first estimate the gross profit by subtracting the gross profit percentage from the net sales. Then, the estimated cost of goods sold is determined by subtracting the estimated gross profit from the net sales.

In this case:

1. Net Sales = $20,000
2. Average Gross Profit Percentage = 40%
3. Estimated Gross Profit = Net Sales × Gross Profit Percentage = $20,000 × 0.40 = $8,000
4. Estimated Cost of Goods Sold = Net Sales - Estimated Gross Profit = $20,000 - $8,000 = $12,000

Therefore, the estimated cost of goods sold for Berta Company is $12,000.

Answer 2

Lost Inventory would be $2.000

Step-by-step explanation:

Consider the following calculations and variables

• Inventory cost at beginning : $1000
• Purchase : $13,000
• Sales : $20000
• cost of Goods Available = $1000 + $13,000 = $14,000
• Gross Profit percentage is 40%. So Cost of Goods Sold = 100-40 = 60%
• Cost of Goods Sold = $20000 * 60% = $12000
• Ending Inventory = Cost of Goods Available - Cost of Goods Sold = $14000 - $12000 = $2000

Lost Inventory would be $2000