Evaluate estimated cost of each of the toppings lost

Reference no: EM139979

Redbird supplies ice cream shops with various toppings for ice cream sundaes. On November 17, 2009, a fire in Redbird's warehouse destroyed all of the toppings stored in that section. Redbird must provide its insurance company with an estimate of the amount of inventory lost. The following information is available from the company's accounting records:

	Fruit Toppings	Marshmallow Toppings	Chocolate Toppings
Inventory, January 1, 2009	$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%

Required:

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

b) What factors could cause the estimates to be over- or understated?

Reference no: EM139979

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