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15 November, 09:28

On March 15, a fire destroyed Interlock Company's entire retail inventory. The inventory on hand as of January 1 totaled $4,950,000. From January 1 through the time of the fire, the company made purchases of $2,049,000, incurred freight-in of $234,000, and had sales of $3,630,000. Assuming the rate of gross profit to selling price is 30%, what is the approximate value of the inventory that was destroyed? a. $6,144,000. b. $4,458,000. c. $4,692,000. d. $7,233,000.

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  1. 15 November, 10:44
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    Answer: Option (c) is correct.

    Explanation:

    Gross profit of 30% means that every $1 of Sales require $0.7 of inventory and cost of freight.

    So, inventory used to generate sales of $3,630,000:

    = $3,630,000 x 0.7

    = $2,541,000

    Total inventory during the period:

    = Beginning inventory + Purchases

    = $4,950,000 + $2,049,000

    = $6,999,000

    Remaining Inventory:

    = (Total inventory - Inventory used to generate sales) + freight-in

    = ($6,999,000 - $2,541,000) + $234,000

    = $4,692,000
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