Question

Bramble Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the following. Inventory (beginning) $ 81,000 Sales revenue $407,900 Purchases 295,600 Sales returns 20,700 Purchase returns 27,900 Gross profit % based on net selling price 32 % Merchandise with a selling price of $29,400 remained undamaged after the fire, and damaged merchandise has a net realizable value of $8,000. The company does not carry fire insurance on its inventory. Compute the amount of inventory fire loss. (Do not use the retail inventory method.)

Answer 1

inventory fire loss = $15,752

Step-by-step explanation:

inventory fire loss:

beginning inventory $81,000

+ purchases $295,600

- purchase returns $27,900

- COGS $302,016

inventory before fire = $46,684

- cost of undamaged inventory = -$22,932

- salvage value of damaged inventory = -$8,000

inventory fire loss = $15,752

calculations of COGS and cost of undamaged inventory:

COGS based on net revenue from sales:

gross profit ratio = (net revenue - COGS) / net revenue

• net revenue = $407,900 - $20,700 = $387,200
• gross profit ratio = 0.22

0.22 = ($387,200 - COGS) / $387,200

$387,200 - COGS = $387,200 x 0.22 = $85,184

COGS = $387,200 - $85,184 = $302,016

inventory undamaged by fire = $29,400

cost of undamaged inventory = $29,400 - ($29,400 x 0.22) = $22,932