Question

Retail Method; Gross Profit Method

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

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1. Determine the estimated cost of the merchandise inventory of Celebrity Tan Co. on August 31 by the retail method.

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

2b. Assume that Ranchworks Co. took a physical inventory on November 30 and discovered that $369,750 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during March through November?

Answer 1

	Retail Mathod
1	Beginning inventory		$300,000	(At cost)
	Add:Purchases		$2,149,000	(At cost)
	Goods available for sale		$2,449,000
	Sales	$3,250,000
	Less: Sales Return	$80,000
	Net Sale		$1,965,400	($3170000*.38)
	Ending inventory		$483,600
2a	Gross Profit Mathod
	Cost of Beginning Inventory	$880,000
	Add : Net Purchase at cost	$9,500,000
	Cost of goods available for sale		$10,380,000
	Sales	$15,900,000
	Less: Sales Return	$100,000
	Net Sale	$15,800,000
	Less: Estimated Gross Profit 38%	$6,004,000
	Estimated Cost of Goods Sold		$9,796,000
	Estimated Cost of Ending Inventory		$584,000
2b	Closing Invetory of Ranchworks company		$584,000
	Less: Physical inventory available		$369,750
	Inventory due to theft or damaged		$214,250

Note :

1- Assuming Gross Profit Rate is same in both companies

2-Assuming Opening Inventory and purchase of inventory at cost price