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Testbank Multiple Choice Question 107 On August 31, a hurricane destroyed a retail location of Oriole's Clothier including the entire inventory on hand at the location. The inventory on hand as of June 30 totaled $1875000. Since June 30 until the time of the hurricane, the company made purchases of $483000 and had sales of $1464000. Assuming the rate of gross profit to selling price is 25%, what is the approximate value of the inventory that was destroyed

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Answer:

$1,260,000

Explanation:

Gross profit of 25% means that every $1 of Sales require $0.75 of inventory

So, inventory used to generate sales of $1,464,000, $1,464,000*0.75 = $1,098,000

Total inventory during the period = $1,875,000 + $483,000

Total inventory during the period = $2,358,000

Remaining Inventory = $2,358,000 - $1,098,000

Remaining Inventory = $1,260,000

So, the approximate value of the inventory that was destroyed is $1,260,000

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