Question

The following information is available for October for Norton Company. Beginning inventory $300,000 Net purchases900,000 Net sales 1,800,000 Percentage markup on cost 66.67% A fire destroyed Norton’s October 31 inventory, leaving undamaged inventory with a cost of $18,000. Using the gross profit method, the estimated ending inventory destroyed by fire is a. $136,000. b. $616,000. c. $640,000. d. $800,000.

Answer 1

To estimate the ending inventory destroyed by fire using the gross profit method, calculate COGS and the gross profit rate. Then, use the formula: Estimated ending inventory = Beginning inventory + Net purchases - COGS.

Step-by-step explanation:

To estimate the ending inventory destroyed by fire using the gross profit method, we need to calculate the cost of goods sold (COGS) and the gross profit rate. Then, we can use the formula:

Estimated ending inventory = Beginning inventory + Net purchases - COGS

First, calculate the COGS:

COGS = Net sales - (Net sales / (1 + (Percentage markup on cost / 100)))

Next, calculate the gross profit rate:

Gross profit rate = Gross profit / Net sales

Now, we can use the formula to calculate the estimated ending inventory:

Estimated ending inventory = Beginning inventory + Net purchases - COGS