Carrie’s Cotton Candy Company sells cotton candy to visitors at a traveling county fair. During a drought a fire destroyed the entire inventory in late July. In order to file an insurance claim, Carrie, the owner of the company, must estimate the value of the lost inventory. Records from January 1 through the date of the fire in July indicated that Carrie’s Cotton Candy Company started the year with $4,250 worth of inventory on hand. Purchases for the year amounted to $8,000, and sales up to the date of the fire were $17,500. Gross profit percentage has traditionally been 35%.

Requirements

1. How much should Carrie request from the insurance company?

2. Suppose that one bag of cotton candy mix was spared by the fire. The cost of that bag was $50. How much was the inventory loss under these conditions?