Question

Retail Method; Gross Profit Method

Selected data on merchandise inventory, purchases, and sales for Celebrity Tan and Ranchworks Co. are as follows:

Cost		Retail
Celebrity Tan
Merchandise inventory, August 1	$392,000		$552,000
Transactions during August:
Purchases (net)	4,507,000		6,348,000
Sales			6,530,000
Ranchworks Co.
Merchandise inventory, March 1	$239,000
Transactions during March through November:
Purchases (net)	3,176,000
Sales	5,039,000
Estimated gross profit rate	36%

Required:

1. Determine the estimated cost of the merchandise inventory of Celebrity Tan on August 28 by the retail method, presenting details of the computations.

Celebrity Tan
Cost of the Merchandise Inventory
August 31
		Cost	Retail
		$	$
		$	$
Ratio of cost to retail price:	%
			$
			$

2a. Estimate the cost of the merchandise inventory of Ranchworks Co. on November 30 by the gross profit method, presenting details of the computations.

Ranchworks Co.
Cost of the Merchandise Inventory
November 30
		Cost
		$
		$
	$
		$

2b. Assume that Ranchworks Co. took a physical inventory on November 30 and discovered that $178,600 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during March thru November?

Answer 1

Part 1

Celebrity Tan Co. Estimated cost of inventory August 31
		Cost	Retail
Merchandise inventory august 1		392000	552000
Net purchases		4507000	6348000
Merchandise available for sale		4899000	6900000
Ratio of cost to retail price (4899000/6900000)	71.00%
Sales			6530000
Merchandise inventory august 31, at retail			370000
Merchandise inventory at estimated cost (370000*71%)			$262700

Part 2 a

Ranchworks, Co. Estimated cost of inventory November 30
		Cost
Merchandise inventory march 1		239000
Net purchases		3176000
Merchandise available for sale		3415000
Sales	5039000
Less: estimated gross profit (5039000*36%)	1814040
estimated cost of merchandise sold		3224960
Estimated merchandise inventory, November 30		$190040

Part 2b

Estimated merchandise inventory, November 30		190040
Physical inventory count, November 30		178600
Estimated loss due to theft or damage, march1-november 30		$11440