Final answer:
Using the gross profit method, the estimated cost of Barton Company's ending inventory destroyed by fire is $85,000. This is calculated by determining the cost of goods available for sale, the cost of goods sold, and then subtracting the undamaged inventory from the estimated ending inventory before destruction.
Step-by-step explanation:
The gross profit method is used to estimate the cost of inventory that has been destroyed or lost. To calculate the estimated ending inventory destroyed by fire, we can follow these steps:
Calculate the cost of goods available for sale by adding beginning inventory to net purchases.
Determine the cost of goods sold using the markup percentage. Since the markup on cost is 66.67%, the cost of goods equals 100% / (100% + 66.67%) of net sales.
Subtract the cost of goods sold from the cost of goods available for sale to estimate the ending inventory before destruction.
Subtract the cost of the undamaged inventory from the estimated ending inventory to find the cost of inventory destroyed by the fire.
Let's perform the calculations:
1. Cost of Goods Available for Sale = Beginning Inventory + Net Purchases = $250,000 + $750,000 = $1,000,000
2. Cost of Goods Sold = Net Sales * Cost Percentage = $1,500,000 * (100% / (100% + 66.67%)) = $1,500,000 * (100 / 166.67) = $900,000
3. Estimated Ending Inventory before Destruction = Cost of Goods Available for Sale - Cost of Goods Sold = $1,000,000 - $900,000 = $100,000
4. Estimated Ending Inventory Destroyed by Fire = Estimated Ending Inventory before Destruction - Undamaged Inventory = $100,000 - $15,000 = $85,000