The merchandise inventory was destroyed by fire on August 19th. The following data were obtained from the accounting records.
Jan 1 Merchandise inventory $360,000
Jan 1-Aug 19 Purchases (net) 3,200,000
Sales (net) 5,200,000
Estimated gross profit rate 36%
a. Estimate the cost of the merchandise destroyed
b. Briefly descrive the situations in which the gross profit method is useful