Question

Coastal Shores Inc. (CSI) was destroyed by Hurricane Fred on August 5, 2021. At January 1, CSI reported an inventory of $184,000. Sales from January 1, 2021, to August 5, 2021, totaled $494,000 and purchases totaled $209,000 during that time. CSI consistently marks up its products 60% over cost to arrive at a selling price. The estimated inventory loss due to Hurricane Fred would be:

Answer 1

To estimate CSI's inventory loss from Hurricane Fred, we calculate the COGS and estimate the ending inventory pre-hurricane. The COGS is derived from sales and the consistent markup, resulting in an estimated inventory loss of $84,250.

Step-by-step explanation:

To estimate the inventory loss for Coastal Shores Inc. (CSI) due to Hurricane Fred, we must first calculate the cost of goods sold (COGS) and then estimate the ending inventory, assuming the markup is consistent across all products.

Here are the steps to calculate the COGS:

Beginning Inventory: $184,000

Purchases: $209,000

Goods Available for Sale: $184,000 (Beginning Inventory) + $209,000 (Purchases) = $393,000

Cosmetics Markup: 60%

Sales: $494,000

Since the markup is 60%, we can determine the cost ratio is 100% / (100% + 60%) = 100% / 160% = 5/8. This means that for every dollar of sales, $0.625 is COGS and the remainder is markup.

Using the given sales figure, we can now calculate the COGS based on the sales:

COGS = Sales * Cost Ratio = $494,000 * 5/8 = $308,750

With COGS known, we can estimate the ending inventory before the hurricane:

Ending Inventory = Goods Available for Sale - COGS = $393,000 - $308,750 = $84,250

Therefore, the estimated inventory loss due to Hurricane Fred would be $84,250.

Answer 2

$84,250

Step-by-step explanation:

The computation of the estimated inventory loss is shown below:

= Opening Inventory + Purchases - Cost of Sales

where,

Cost of sales is

= $494,000 ×100 ÷ 160

= $308,750

And, the opening inventory is $184,000

And, the purchase is $209,000

So, the estimated inventory loss is

= $184,000 + $209,000 - $308,750

= $84,250

We simply applied the above formula so that the estimated inventory loss could arrive