Answer:
cost of the inventory lost is $600,000
Explanation:
The cost of goods sold is computed as follows
$
Opening stock xxx
Add purchases during the year xxx
Less closing stock <u> (xxx)</u>
Cost of goods sold <u>xxx</u>
Gross profit is the profit after deducting just the cost of goods sold only. The gross profit margin is the proportion of sales made as gross profit. It indicates how well a company is managaing its cost of inpust.
If a company has a gross profit margin of 30% then the balance figure of 70% of sales represents the value of cost of goods sold.
<em>So we can apply this to our question</em>
Cost of goods sold = (100-40)% × Sales
= 60% × $1,000,000
= $600,000
Now we can work out the cost of the inventory lost which is the closing inventory:
<em>Remember</em>
cost of goods sold = Opening inventory + purchases - closing inventory
600,000 = 200,000 + 1,000,000 - y <em> let y denotes closing inventory</em>
<em>y = </em>200,000 + 1,000,000 - 600,000
y = 600,000
cost of the inventory lost is $600,000
