SOLUTION: 107. On August 31, a hurricane destroyed a retail location of Vinny's Clothier including the entire inventory on hand at the location. The inventory on hand as of June 30 totaled $

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Question 1195814: 107. On August 31, a hurricane destroyed a retail location of Vinny's Clothier including the entire inventory on hand at the location. The inventory on hand as of June 30 totaled $960,000. Since June 30 until the time of the hurricane, the company made purchases of $255,000 and had sales of $750,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed?
a. $960,000.
b. $544,500.
c. $615,000.
d. $765,000.
Found 2 solutions by math_tutor2020, MathTherapy:
Answer by math_tutor2020(3817)   (Show Source): You can put this solution on YOUR website!

The gross profit percentage formula is:
Gross profit = [ (sales - cost)/sales ] * 100%

The term "sales" is interchangeable with "revenue". It's the amount of money the company brings in.
The cost is the amount of money going out.
The subtraction of these two items gives the profit.
Therefore, the gross profit is the percentage of sales.
In this case, a 40% gross profit means the company makes $40 for every $100 sold.

Let x be the unknown cost of goods sold.

So,
Gross profit = [ (sales - cost)/sales ] * 100%
40% = [ (750,000 - x)/(750,000) ] * 100%
40/100 = (750,000 - x)/(750,000)
0.40 = (750,000 - x)/(750,000)
0.40*750,000 = 750,000 - x
300,000 = 750,000 - x
300,000 + x = 750,000
x = 750,000 - 300,000
x = 450,000

$450,000 was the cost of goods sold during the period of June 30 to August 31.
This is the cost for the company (and not the amount of money the company pulls in). This is part of their expenses.

The company starts with $960,000 in inventory on hand for June 30th. Subtract off the $450,000 calculated earlier since this amount of goods were sold. This dollar amount of inventory has left their premises.

960,000 - 450,000 = 510,000

Then add on the $255,000 to represent the new inventory purchased. Assume that only inventory was bought here. That means we don't include things like office furniture or computers to help run the business; we only focus on things that will be sold to the customer.

510,000 + 255,000 = $765,000 is the final answer (choice D)
Answer by MathTherapy(10555)   (Show Source): You can put this solution on YOUR website!

107. On August 31, a hurricane destroyed a retail location of Vinny's Clothier including the entire inventory on hand at the location. The inventory on hand as of June 30 totaled $960,000. Since June 30 until the time of the hurricane, the company made purchases of $255,000 and had sales of $750,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed?
a. $960,000.
b. $544,500.
c. $615,000.
d. $765,000.
Let D be the value of the destroyed, or otherwise, ending inventory  

Gross Profit/Margin/Income = Sales - COGS (Beginnining Inventory + Purchases - Ending Inventory)

                           = 750,000 - (960,000 + 255,000 - D)

                           = 750,000 - (1,215,000 - D)

                           = 750,000 - 1,215,000 + D

                           = - 465,000 + D



                   - 465,000 + D = 300,000 ------- Cross-multiplying

  Destroyed inventory, or D = 300,000 + 465,000 = $765,000 (CHOICE d.) 

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