Question

Home Hardware reported beginning inventory of 25 shovels, for a total cost of $250. The company had the following transactions during the month:

Jan. 2 Sold 6 shovels on account at a selling price of $15 per unit.

16 Sold 11 shovels on account at a selling price of $15 per unit.

18 Bought 9 shovels on account at a cost of $10 per unit.

19 Sold 11 shovels on account at a selling price of $15 per unit.

24 Bought 11 shovels on account at a cost of $10 per unit.

31 Counted inventory and determined that 16 units were on hand.

3-a. What is the dollar amount of shrinkage that you were able to determine in periodic inventory system?

One cannot determine

$10

3-b. What is the dollar amount of shrinkage that you were able to determine in perpetual inventory system?

Answer 1

\(3-\mathrm{a}\)

The correct option is 'One cannot determine'.

Under periodic inventory system, up-to-date accounts are not kept. The inventory or cost of goods sold are updated after a particular period of time. Thus, shrinkage cannot be determined.

3b.

Units available for sale

$$ \begin{aligned} &=25+9+11 \\ &=45 \text { units } \end{aligned} $$

Units sold

$$ \begin{aligned} &=6+11+11 \\ &=28 \text { units } \end{aligned} $$

Units in inventory as per books

$$ \begin{aligned} &=45-28 \\ &=17 \text { units } \end{aligned} $$

Shrinkage in units

= Units in inventory as per books - Units in inventory as per physical count

$$ \begin{aligned} &=17-16 \\ &=1 \text { unit } \end{aligned} $$

Shrinkage amount

$$ \begin{aligned} &=1 \text { unit } \times \$ 10 \\ &=\$ 10 \end{aligned} $$

\({ }^{*} \$ 10\) is the purchase price per unit from last purchase.