Gross profit method
Response to the following problem:
A fire destroyed a warehouse of the Goren Group, Inc., on May 4, 2013. Accounting records on that date indicated the following:
| Merchandise inventory, January 1, 2013 |
$ |
1,900,000 |
| Purchases to date |
|
5,800,000 |
| Freight-in |
|
400,000 |
| Sales to date |
|
8,200,000 |
The gross profit ratio has averaged 20% of sales for the past four years.
Required:
Use the gross profit method to estimate the cost of the inventory destroyed in the fire.