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Sir_Froggy
07-20-2005, 01:51 PM
ok so this question I've been looking at for awhile now and still can't get. If someone could explain this to me that'd be awesome

Fitzerald Corp. uses a periodic inventory system. At the beginning of 1998 its inventory balanec was \$25,000. During the first 4 months of 1998, net purchases amounted to \$325,000 and net sales were \$400,000. On May 1, 1998, a fire destroyed the company's warehouse and its entire inventory. The average gross profit percentage in recent years had been 30%. What is the estimated amount of Fitzgerald's inventory loss on May 1, 1998?

they say the answer is \$60,000 but I have no idea how to get there. except one way which doesn't make any sense.

TIA

Merlin
07-20-2005, 03:04 PM
Yeah, I'm struggling with this one a little. They start with 25 and buy 325 for a total of 350. Of that they sold 400 with a cost of 70%. That is inventory with a cost of 280 (400*0.7). 350-280=inventory on hand for the fire. So it sounds to me like the answer should be 70. :shrug:

Grimm
07-20-2005, 03:26 PM
Ok, to see how much inventory was sold we need to out how much the \$400,000 of sales cost the company. So we need to solve for costs where costs is the value of expened invertory.
We know that sales = 400,000.
We know that sales = gross + costs
We know that gross = (0.3)sales
sales = (0.3)sales + costs
sales - (0.3)sales = costs
\$400,000 - (0.3)\$400,000 = costs
\$400,000 - \$120,000 = costs
\$280,000 = costs

So with a cost = \$280,000 we can determine that:
\$325000 + \$25000 - \$280000 = value of inventory
\$70,000 = value of inventory

So, obviously, I have no clue.
Of course... we didn't account for labor, taxes and rent...

Sir_Froggy
07-20-2005, 10:51 PM
yea I got 70 as well, but it didn't end up on the test so sorry for wasting your time.

Mike_N_Ike
07-20-2005, 11:47 PM
...

So, obviously, I have no clue.
...
:laugh:

Man...I got excited when you started writing everything out...I thought I was going to get to see the answer :(