Selected data on merchandise inventory, purchases, and sales for Celebrity Tan a

Question

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

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.

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

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?

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%

Explanation / Answer

1) Value of Inventory by retail methof of Celebrity Tan is $220,000.The Calculation is as follows

Inventory at end= Opening Merchandise($328,000)+Purchases($3,772,000)-Sales($3,880,000)

2a) The closing merchandise is $302,000.ie.gross profit is 1/3rd of sales means 1/2 on cost of goods

Closing Merchandise = opening merchandise($234,000)+purchases($3,104,000)+Gross Profit@50% of cost of goods sold($1,669,000)-Sales($4,705,000)

2b) If closing merchandise is $174500 then loss due to theft is $127,500

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