Virginia Company lost all of its inventory in a fire on December 26. 2006. The accounting records showed the following gross profit data for November and December.

Virginia is fully insured lor fire losses but must prepare a report lor the insurance company.

Instructions

(a) Compute the gross profit rate for November.

(b) Using the gross profit rate for November, determine the estimated cost of the inventory lost in the fire.

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November December (to 12/26) Net sales $500,000 $400,000 Beginning inventory 34.100 31.100 Purchases 319,975 236,000 Purchase returns and allowances 11,800 5.000 Purchase discounts 7,577 6,000 Freight-in 6.402 3,700 Ending inventory 31.100