A fire destroyed a warehouse of the Goren Group, Inc., on May 4, 2021. Accounting records on that date indicated the following: Merchandise inventory, January 1, 2021 $ 1,970,000 Purchases to date 5,870,000 Freight-in 470,000 Sales to date 8,900,000 The gross profit ratio has averaged 20% of sales for the past four years. Required: Use the gross profit method to estimate the cost of the inventory destroyed in the fire.

$1,190,000

Explanation:

The computation of cost of the inventory is given below:-

For computing the cost of inventory first we need to find out the cost of goods sold which is shown below:-

Cost of goods sold = Sales - Estimated gross profit

= $8,900,000 - ($8,900,000 × 20%)

= $7,120,000

Now, the Cost of the inventory = Beginning inventory + Purchase + Freight - Cost of goods sold

= $1,970,000 + $5,870,000 + $470,000 - $7,120,000

= $8,310,000 - $7,120,000

= $1,190,000

So, for computing the cost of the inventory we have applied the above formula.

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1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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