|Purpose:||(L.O. 8) This exercise will illustrate the use of the gross profit method of inventory estimation.|
Carol Morlan requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1, was $38,000. Purchases since January 1 were $72,000; freight-in, $3,400; purchase returns and allowances, $2,400. Net sales totaled $100,000 to March 9. All goods on hand on March 9 were destroyed. Prior experience shows that the gross profit rate is 25% of sales.
Compute the cost of goods destroyed.