On April 8, 2010, a flood destroyed the warehouse of Stuco Distributing Co. From

Question

On April 8, 2010, a flood destroyed the warehouse of Stuco Distributing Co. From the waterlogged records of the company, management was able to determine that the firm's gross profit ratio had averaged 35% for the past several years and that the inventory at the beginning of the year was $209,600. It also was determined that during the year until the date of the flood, sales had totaled $427,200 and purchases totaled $242,920.


Required:
Calculate the amount of inventory loss from the flood. (Input the amount as positive value. Omit the "$" sign in your response.)
Inventory loss $

Explanation / Answer

Gross profit ratio expresses relationship between gross profit and net sales. It is obtained by dividing gross profit by net sales and expressing this relationship as a percentage. Gross profit is obtained by deducting cost of goods sold from net sales. SO GP Ratio = (Net Sales-COGS)/Net Sales = 35% ie (Net Sales-COGS) = 35%*Net Sales ie COGS = 65%*Net Sales = 65%*427,200 = $277,680 Now COGS = (Op Inv+Purch - Closing Inv) ie $277,680 = 209600 + 242920-Cloing Inv ie Closing Inv = 209600 + 242920-277680 = $174,840 SO amount of Inventory Loss = CLosing Inv = $174,840

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