Question

On November 21, 2021, a fire at Hodge Company's warehouse caused severe damage to its entire inventory of Product Tex. Hodge estimates that all usable damaged goods can be sold for $28,000. The following information was available from the records of Hodge's periodic Inventory system: Inventory, November 1 Net purchases from November 1, to the date of the fire Net sales from November 1, to the date of the fire $180,000 156,000 236,000 Based on recent history, Hodge's gross profit ratio on Product Tex is 30% of net sales.
Required:
Calculate the estimated loss on the inventory from the fire, using the gross profit method.

Answer 1

Answer:

$142,800

Explanation:

Calculation for the estimated loss on the inventory from the fire, using the gross profit method.

First step is to find the Cost of Goods available for sale

Cost of Goods available for sale = $180,000+$156,000

Cost of Goods available for sale= $336,000

Second step is to find the cost of Goods Sold

Cost of Goods Sold = $236,000 - 30%

Cost of Goods Sold = $165,200

Third step is to find the Cost of Goods Sold

Cost of ending inventory = $336,000 - $165,200

Cost of Goods Sold = $170,800

Last step is to calculate the Estimated loss from fire using this formula

Estimated loss from fire= Cost of Goods Sold - Estimated usable damaged goods

Let plug in the formula

Estimated loss from fire= $170,800 - $28,000

Estimated loss from fire= $142,800

Therefore the estimated loss on the inventory from the fire, using the gross profit method will be $142,800