Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 31

Use gross profit ratio to calculate inventory loss Franklin Co. has experienced gross profit ratios for 2016, 2015, and 2014 of 33%, 30%, and 31%, respectively. On April 3, 2017, the firm's plant and all its inventory were destroyed by a tornado. Accounting records for 2017, which were available because they were stored in a protected vault, showed the following:

Required:
Calculate the amount of the insurance claim to be filed for the inventory destroyed in the tornado. (Hint: Use the cost of goods sold model and a gross profit ratio that will result in the largest claim.)