On March 15, a fire destroyed Interlock Company's entire retail inventory. The inventory on hand as of January 1 totaled $4,950,000. From January 1 through the time of the fire, the company made purchases of $2,049,000, incurred freight-in of $234,000, and had sales of $3,630,000. Assuming the rate of gross profit to selling price is 30%, what is the approximate value of the inventory that was destroyed? a. $6,144,000. b. $4,458,000. c. $4,692,000. d. $7,233,000.

Question

Business

Stephen

25 October, 20:17

On March 15, a fire destroyed Interlock Company's entire retail inventory. The inventory on hand as of January 1 totaled $4,950,000. From January 1 through the time of the fire, the company made purchases of $2,049,000, incurred freight-in of $234,000, and had sales of $3,630,000. Assuming the rate of gross profit to selling price is 30%, what is the approximate value of the inventory that was destroyed? a. $6,144,000. b. $4,458,000. c. $4,692,000. d. $7,233,000.

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Answers (1)

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Marquez · Answer 1

Answer: Option (c) is correct.

Explanation:

Gross profit of 30% means that every $1 of Sales require $0.7 of inventory and cost of freight.

So, inventory used to generate sales of $3,630,000:

= $3,630,000 x 0.7

= $2,541,000

Total inventory during the period:

= Beginning inventory + Purchases

= $4,950,000 + $2,049,000

= $6,999,000

Remaining Inventory:

= (Total inventory - Inventory used to generate sales) + freight-in

= ($6,999,000 - $2,541,000) + $234,000

= $4,692,000