Question

The president of Luna Sea Corporation is concened that the year-end inventory of the company is less than it should be. A physical count was made at year-end and the costing was accurately calculated using FIFO. The president asks you to estimae the year-end inventory from the following information: 1. Retail inventory method At retail At c should be Sales Less: Sales returns Net sales Cost of goods sold Opening inventory Purchases Less: Purchases returns Transportation-in Cost of goods available for sale Ending inventory Cost of goods sold Gross proft At retoil Atcost $200,000 Sales Sales returns and allowances 5,000 214,500 $102,224 526 4,000 21,053 Purchases returns and 1,000 Opening inventory 40,000 Required: 1 Calculate the estimated ending inventory at cost using the retail inventory method Mark-up rate 190% 2 Estimated inventory lost Estimated ending inventory Actual inventory on hand (given) 2 Calculate the amount of inventory discrepancy at cost assuming: Actual ending inventory, at cost, is $28,634 Estimated inventory lost

Answer 1

1					At retail		At cost,should be
	Sales					200000		100220
							(200000*50.11%)
	Less: Sales returns					5000		2505.5
							(5000*50.11%)
	Net sales					195000		97714.5
							(195000*50.11%)
	Cost of goods sold:
	Opening inventory				40000		21053
	Purchases				214500		102224
	Less: Purchase returns				-1000		-256
	Add: Transportation-in						4000
	Cost of goods available for sale				253500		127021
	Ending inventory						29306.5
	Cost of goods sold					97714.5
	(Net sales at cost)
	Gross profit					97285.5
	Note:1
	Cost to retail percetage=Cost of goods avilable for sale at cost/Cost of goods available for sale at retail=127021/253500=0.5011=50.11%
	Ending inventory=cost of goods available for sale at cost-Net sales at cost=1270121-97714.50=$ 29306.50
	Gross profit=Net sales at retail-cost of goods sold=195000-97714.5=$ 97285.5
2	Estimated inventory lost:
					$
	Estimated ending inventory				29306.5
	Less: Actual inventory on hand (given)				28634
	Estimated inventory lost				672.5