On August 31, a hurricane destroyed a retail location of Chelsea Stores includin

Question

On August 31, a hurricane destroyed a retail location of Chelsea Stores including the entire inventory on hand at the location. The inventory on hand as of June 30 totaled $480,000. Since June 30 until the time of the hurricane, the company made purchases of $250,000 and had sales of $575,000.

a.) If sales are made at 40% above cost, what is the approximate value of the inventory that was destroyed?

b.) Compute the cost of goods destroyed, assuming that the gross profit is 40% of sales.

(I got $385,000)

Explanation / Answer

Req a: Inventory destroyed: Inventory on June30 480,000 Add: Cost of Purchases 250,000 Less: Cost of goods sold (575,000/140*100) 410,714 Inventory detroyed 319,286 Req b: Inventory destroyed: Inventory on June30 480,000 Add: Cost of Purchases 250,000 Less: Cost of goods sold (575,000/60*100) 345,000 Inventory detroyed 385,000

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