Jason Tierro, an inventory clerk at Lexmar Company, is responsible for taking a

Question

Jason Tierro, an inventory clerk at Lexmar Company, is responsible for taking a physical count of the goods on hand at the end of the year. He has been performing this duty for several years. This year Jason was very busy due to a shortage of personnel at the company, so he decided to just estimate the amount of ending inventory instead of doing an accurate count. He reasoned that he could come very close to the true amount because of this past experience working with inventory. Besides, he was sure that the sophisticated computer program that Lexmar had just invested in kept an accurate count of inventory on hand. 1. What is your opinion of Jason's reasoning? Why?

Explanation / Answer

Although the ending inventory needs to be verified by a physical inventory at the end of the year,  the unverified amounts are generally relaible estimates and can be used. Jason Tierro can rely upon other unverified methods to estimate the ending inventory. The other methods which does not take a physical inventory are :

Under the gross profit method , a businesses normal gross profit ( net sales - cost of goods sold) is used to estimate the cost of goods sold and ending inventory.

Retail inventory method : - In this method of inventory estimation an observable pattern exists between prices and cost. The retailer then uses a formual to convert retail prices to cost.

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