As a result of taking a physical inventory count on December 31, 2004, the Chuckles Company inventory was determined to be $61,500. The auditors for Chuckles suspected an inventory shortage and used the gross profit method to estimate the ending inventory. The accounting records for the company contained the following information:

Inventory (1/1/04)	$ 130,000
Purchases (2004)	760,000
Sales (2004)	1,020,000
Sales Returns (2004)	60,000
Gross Profit Ratio	25% of sales

Using the gross profit method, what did the auditors estimate as the amount of the inventory shortage at December 31, 2004?

a.	$240,000
b.	$100,000
c.	$108,500
d.	$170,000

Please explain the answer. Thank you.