The merchandise inventory was destroyed by fire on August 19. The following data were obtained from the accounting records:

Jan. 1......................Merchandise Inventory $360,000

Jan. 1 - Aug 19......Purchases (net) $3,200,000

Sales (net) $5,200,000

Estimated gross profit rate 36%

a. Estimate the cost of the merchandise destroyed

b Briefly describe the situations in which gross profit method is useful