Gross Profit Method: Estimation of Flood Loss On November 21, a flood at Hodge Company's warehouse caused severe damage to its entire inventory of Product Tex. Hodge estimates that all usable damaged goods can be sold for $9,600. The following information was available from Hodge's accounting records for Product Tex: Inventory at November 1 $106,000 Purchases from November 1 to date of flood Net sales from November 1 to date of flood 149,000 233,000 Based on recent history, Hodge had a gross margin (profit) on Product Tex of 35% of net sales. Required: 1. Prepare a schedule to calculate the estimated loss on the inventory in the flood, using the gross profit method. HODGE COMPANY Calculation of Estimated Loss on Inventory in the Flood Using Gross Margin (Profit) Method November 21 Inventory at November 1 Estimated cost of goods sold 2. The gross profit method may not provide an accurate estimate of ending inventory when: