Tilley-Mill Company takes a physical inventory at the end of each calendar-year accounting period to establish the ending inventory amount for financial statement purposes. Its financial statements for the past few years indicate an average gross margin on net sales of 25 per cent.
On July 18, a fire destroyed the entire store building and its contents. The records in a fireproof vault were intact. Through July 17, these records show:
Merchandise inventory, January 1 USD 672,000
Merchandise purchases USD 9,408,000
Purchase returns USD 134,400
Transportation-in USD 504,000
Sales USD 14,336,000
Sales returns USD 672,000
The company was fully covered by insurance and asks you to determine the amount of its claim for loss of merchandise.