The Darden Company Had Its Entire Inventory Destroyed When a Tornado

question 10

Essay

The Darden Company had its entire inventory destroyed when a tornado destroyed the company's warehouse on April 30, 2013. The following information for the period up to the date of the tornado was taken from the accounting records Required:
Assuming that the gross margin has averaged 25 percent of selling price, what is the estimated value of the inventory destroyed in the fire? Show all calculations in good form.

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Definitions:

Income Effect

The effect of changes in either individual or economic income on the demand levels for goods or services.

Inferior Good

A type of good whose demand decreases as consumer income rises, meaning it is often replaced by more desirable goods as financial circumstances improve.

Normal Good

A type of good for which demand increases as the income of individuals rises, holding all other factors constant.

Giffen Good

A product for which demand increases as its price increases, contrary to the standard demand model, due to the interplay of income and substitution effects.