The Accountant for a Company Whose Inventory Was Destroyed by Fire

question 72

Multiple Choice

The accountant for a company whose inventory was destroyed by fire determined from undamaged records that the cost of goods available for sale was $100,000 and the net sales were $80,000 up to the date of the fire. The accountant also determined that the company's normal gross profit rate is 40 percent of net sales. From this data, the accountant estimated the cost of the inventory destroyed by the fire to be

• A) $60,000.
• B) $52,000.
• C) $32,000.
• D) $20,000. $80,000 x .6 = $48,000
• $100,000 - $48,000 = $52,000.

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Definitions:

Indirect Labor Costs

Costs associated with employees who do not directly work on the product but are necessary for the manufacturing process.

Work in Process

Inventory consisting of items that are in the process of being manufactured but are not yet complete.

Raw Materials Transactions

Activities and records pertaining to the purchase, usage, and inventory management of raw materials used in the production process.

November

The eleventh month of the year in the Gregorian calendar, marking the late autumn in the Northern Hemisphere and late spring in the Southern Hemisphere.