Adams Corporation estimates that it lost $111,700 in inventory from a recent flo

Question

Adams Corporation estimates that it lost $111,700 in inventory from a recent flood. The following information is available from the records of the company’s periodic inventory system: beginning inventory, $240,000; purchases and net sales from the beginning of the year through the date of the flood, $480,000 and $790,000, respectively.

What is the company’s gross profit ratio?

                                                                             GROSS PROFIT RATIO

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                                                                             GROSS PROFIT RATIO

Choose Numerator:                                         

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Choose Denomiator                                                      =        Gross Profit Ratio                                         /   = Gross profit ration / =

Explanation / Answer

Gross profit ratio = Gross profit / Net sales * 100

Gross profit = Net sales - purchases - opening stock = 790000 - 240000 - 480000 = 70000

Gross profit ratio = 70000 / 790000 * 100 = 8.86%

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