Retail Method; Gross Profit Method Selected data on merchandise inventory, purch

Question

Retail Method; Gross Profit Method

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 $244,600 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 $292,000 $384,000 Transactions during August: Purchases (net) 3,356,000 4,416,000 Sales 4,543,000 Ranchworks Co. Merchandise inventory, March 1 $328,000 Transactions during March through November: Purchases (net) 4,357,000 Sales 6,507,000 Estimated gross profit rate 32%

Explanation / Answer

76%

Celebrity Tan Cost of the Merchandise Inventory 31-Aug Cost Retail Merchandise inventory, August 1 292000 384000 Net purchases 3356000 4416000 Merchandise available for sale 3648000 4800000 Ratio of cost to retail price:(3648000/4800000)*100

76%

Sales 4543000 Merchandise inventory, August 31, at retail 257000 Merchandise inventory, at estimated cost (257000*76%) 195320 $ 2a) Ranchworks Cost of the Merchandise Inventory 30-Nov cost Merchandise inventory, August 1 $328,000 Add: Purchases 4357000 cost of goods available for sale $4,685,000 Sales 6507000 Less:Gross Profit 32%*6507000 2082240 Cost of goods sold 4424760 Ending inventory $260,240 2b) Estimated loss due to theft (260240-244600) 15640

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