Thread: Help with a test question

1. Help with a test question

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

2. 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.

3. 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...

4. yea I got 70 as well, but it didn't end up on the test so sorry for wasting your time.

5. Originally Posted by Grimm
...

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

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

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