Problem
On the morning of 15 August, the employees and management of ABC Tech learned that there had been a fire at their warehouse the previous night, and that SOME of their merchandise inventory (but not ALL the inventory) had been damaged or destroyed beyond repair.
That morning, after the fire damage had been discovered, management decided to count the undamaged inventory in order to attempt to estimate the amount of loss. This physical inventory count disclosed $180,000 of goods were on-hand and present in the warehouse.
The following additional data is available from the accounting records of ABC Tech (all amounts in dollars):
Inventory on hand - 1 August $336,000
Inventory purchases received from 1 to 14 August 288,000
Sales, 1 to 14 August 540,000
The inventory in this warehouse was comprised of goods that the company had been selling for some time. Historical experience indicates that the sales prices for the goods that were destroyed in the fire were set, on average, at 45% above cost.
Required (show all calculations):
Calculate an estimate of the dollar amount of inventory on hand at the close of business on August 14 before the fire. In addition, determine the amount of the loss due to the fire.