Question

The records of California Marine Products, Inc., revealed the following information related to inventory destroyed in an earthquake:

Inventory, beginning of period $300,000

Purchases to date of earthquake 160,000

Net sales to date of earthquake 450,000

Gross profit ratio 30%

Inventory, physical count after earthquake 45,000

Determine the estimated amount of inventory destroyed by the earthquake.

Answer 1

$100,00 was destroyed by the earthquake

Step-by-step explanation:

The amount of inventory damaged by the earthquake can be estimated as shown in the computation below:

Opening inventory $300,000

Purchases $160,000

Cost of goods available $460,000

Net sales $450,000

less gross profit(30%*$450,000) ($135,000)

Cost of goods sold $315,000

The difference costs of goods sold and costs of goods available for sale is the closing goods,which is $145,000 ($460,000-$315,000)

Envisaged closing inventory $145,000

actual inventory left after earthquake ($45,000)

inventory lost to earthquake $100,000