Redbird supplies ice cream shops with various toppings for ice cream sundaes. On November 17, 2009, a fire in Redbird's warehouse destroyed all of the toppings stored in that section. Redbird must provide its insurance company with an estimate of the amount of inventory lost. The following information is available from the 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%
|
Required:
a) Calculate the estimated cost of each of the toppings lost in the fire.
b) What factors could cause the estimates to be over- or understated?