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Sunshine supplies ice cream shops with different toppings for ice cream sundaes.  On November 17, 2007, a fire in Redbird’s warehouse damaged all of the toppings stored in that section.  Sunshine should provide its insurance company with the estimate of the amount of inventory lost.  The information given below is available from company’s accounting records:

                                                Fruit Toppings       Marshmallow Toppings      Chocolate Toppings
Inventory, January 1, 2007         $20,000                $7,000                                 $3,000
Net purchases through Nov 17    150,000                36,000                                 12,000
Net sales through Nov 17            200,000                55,000                                 20,000
Historical gross profit rates            20%                      30%                                      35%


1) Compute the estimated cost of each of toppings lost in a fire.

2) prepare down the factors that could cause estimates to be over- or understated?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M99680

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