Chapter 6, Problem 6.27AE

LO 5

(Learning Objective 5: Use the COGS model to make management decisions) Valentine Antiques, Inc., began May with inventory of $49,300. The business made net purchases of $50,200 and had net sales of $81,300 before a fire destroyed the company’s inventory. For the past several years, Valentine’s gross profit percentage has been 45%. Estimate the cost of the inventory destroyed by the fire. Identify another reason that owners and managers use the gross profit method to estimate inventory.