Question

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	$223,000		$328,000
Transactions during August:
Purchases (net)	2,565,000		3,772,000
Sales			3,880,000
Ranchworks Co.
Merchandise inventory, March 1	$234,000
Transactions during March through November:
Purchases (net)	3,104,000
Sales	4,705,000
Estimated gross profit rate	33%

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 $174,500 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during March thru November?
$

Answer 1

1. Estimated cost of Inventory by Retail Method
Celebrity TAN
Cost of Merchandise Inventory
Aug-31
	Cost	Retail
Beginning In ventory	$223,000.00	$328,000.00
Purchase	$2,565,000.00	$3,772,000.00
Cost of Good Available for Sale	$2,788,000.00	$4,100,000.00
Cost to Retail Ratio ( $278000/$4100000)	$0.68
Cost of Good Avaialbale for Sale	$2,788,000.68	$4,100,000.00
Less: Sales		-$3,880,000.00
Ending Inventory		$7,980,000.00
Cost to Retail Ratio		$0.68
Ending Inventory	$5,426,400.00
2. Estimated cost of Inventory by Gross Profit Method
Ranchwork Co.
Cost of Merchandise Inventory
Nov-30
		Cost
Beginning In ventory		$234,000.00
Purchase		$3,104,000.00
Gross Profit ($4705000*33%)		$1,552,650.00
Total		$4,890,650.00
Less: Sales		-$4,705,000.00
Ending Inventory		$185,650.00
2.b Estimated Loss on Inventory
Ending Inventory as per Gross profit Method		$185,650.00
Physical Inventory avaiable on Nov 30		$174,500.00
Estimated Loss		$11,150.00