The University Of Texas At Austin Operations And Supply Chain Management Assignment Help - Dexall Company

Question - Dexall Company recently had a fire in its store. Management must determine the inventory loss for
the insurance company. Since the firm did not have perpetual inventory records, the insurance
company has suggested that it might accept an estimate using the gross profit test. The beginning
inventory, as determined from the last financial statements, was $10,000. Purchase invoices indicate
purchases of $100,000. Credit and cash sales during the period were $120,000. Last year, the gross
profit for the firm was 40%, which was also the industry average.
Required
a. Based on these data, estimate the inventory loss.
b. If the industry average gross profit was 50%, why might the insurance company be leery of the
estimated loss?

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