This exercise will illustrate the use of the gross profit method of inventory estimation.
Carol Morlan requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1, was $38,000. Purchases since January 1 were $72,000; freight-in, $3,400; purchase returns and allowances, $2,400. Net sales totaled $100,000 to March 9. All goods on hand on March 9 were destroyed. Prior experience shows that the gross profit rate is 25% of sales.
Instructions
Compute the cost of goods destroyed.
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