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On 1st September 2008,A co had inventory of $380000.During the month sales totalled $650000 and purchases $480000.On 30th Sept 2008 a fire destroyed some of the inventory.The undamaged goods were valued at $220000.The business operates with a standard gross profit margin of 30%.
What is the cost of the inv destroyed in the fire?
Ans is $185000.
How do we get 455000?
Have you watched my free lectures on markups and margins?
I don’t know where you found this question, but the cost of inventory destroyed in the fire is not 455,000 at all!
Since sales are 650,000, the cost of sales must be 70% x 650,000 = 455,000
Therefore the closing inventory should be 380,000 + 480,000 – 455,000 = 405,000.
Since the actual closing inventory is 220,000, then cost of the inventory destroyed in the fire must be 405,000 – 220,000 = 185,000.
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