Cost Retail
Celebrity Tan
Merchandise inventory, August 1 $ 300,000 $ 575,000
Transactions during August:
Purchases (net) 2,149,000 3,375,000
Sales 3,250,000
Sales returns and allowances 80,000
Ranchworks Co.
Merchandise inventory, March 1 $ 880,000
Transactions during March through November:
Purchases (net) 9,500,000
Sales 15,900,000
Sales returns and allowances 100,000
Estimated gross profit rate 38%
Instructions
1. Determine the estimated cost of the merchandise inventory of Celebrity Tan Co. on August 31 by the retail method, presenting details of the computations.
2.
a. Estimate the cost of the merchandise inventory of Ranchworks Co. on November
30 by the gross profit method, presenting details of the computations.
b. 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.
CELEBRITY TAN CO.
Cost Retail
Merchandise inventory, August 1 $ 300,000 $ 575,000
Net purchases 2,149,000 3,375,000
Merchandise available for sale $2,449,000 $3,950,000
$2,449,000 Ratio of cost to retail price: $3,950,000 = 62%
Sales $3,250,000
Less sales returns and allowances 80,000
Net sales 3,170,000
Merchandise inventory, August 31, at retail $ 780,000
Merchandise inventory, at estimated cost
($780,000 × 62%) $ 483,600
2.
RANCHWORKS CO.
Cost
a. Merchandise inventory, March 1 $ 880,000
Net purchases 9,500,000
Merchandise available for sale $10,380,000
Sales $15,900,000
Less sales returns and allowances 100,000
Net sales $15,800,000
Less estimated gross profit ($15,800,000 × 38%) 6,004,000
Estimated cost of merchandise sold 9,796,000
Estimated merchandise inventory, November 30 $ 584,000
b. Estimated merchandise inventory, November 30 $ 584,000
Physical inventory count, November 30 369,750
Estimated loss due to theft or damage,
March 1–November 30 $ 214,250