The merchandise inventory was destroyed by fire on October 11. The following data were obtained from the

Question:

The merchandise inventory was destroyed by fire on October 11. The following data were obtained from the accounting records:

Jan. 1 Merchandise inventory $ 260,000
Jan. 1–Oct. 11 Purchases (net) 1,900,000
Sales (net) 3,200,000
Estimated gross profit rate 40%

a. Estimate the cost of the merchandise destroyed.
b. Briefly describe the situations in which the gross profit method is useful.