Gross Margin Method of Estimating Inventory
Late on the night of November 30, 2011, an arsonist destroyed the Christmas House Company warehouse, which was full of inventory. Luckily the accounting records were stored in another facility and not destroyed in the fire. Christmas House Company is in the process of filing a claim with its insurance company for the inventory loss due to the fire.
Beginning inventory $545,500
Purchases through November 30, 2011 250,000
Net sales revenue through November 30, 2011 900,000
The gross margin percent has historically been 25% of net sales revenue.
Required: Estimate the value of the inventory destroyed in the fire using the gross margin method.