Q1) Redbird supplies ice cream shops with different toppings for ice cream sundaes. On November 17, 2009, a fire in Redbird's warehouse ruined all the toppings stored in that section. Redbird should give its insurance company with the estimate of amount of inventory lost. Following information is available from company's accounting records:
|
|
Fruit
Toppings
|
Marshmallow
Toppings
|
Chocolate
Toppings
|
|
Inventory, January 1, 2009
|
$20,000
|
$7,000
|
$3,000
|
|
Net purchases through Nov 17
|
150,000
|
36,000
|
12,000
|
|
Net sales through Nov 17
|
200,000
|
55,000
|
20,000
|
|
Historical gross profit rates
|
20%
|
30%
|
35%
|
a) Compute estimated cost of each of toppings lost in fire.
b) Write down the factors that could cause estimates to be over- or understated?