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 $165,300 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 $363,000 $472,000 Transactions during August: Purchases (net) 4,180,000 5,428,000 Sales 5,584,000 Ranchworks Co. Merchandise inventory, March 1 $221,000 Transactions during March through November: Purchases (net) 2,943,000 Sales 5,152,000 Estimated gross profit rate 42%

Explanation / Answer

1. Determine the estimated cost of the merchandise inventory of Celebrity Tan on August 28 by the retail method, presenting details of the computations. Celebrity Tan Cost of the Merchandise Inventory August 31 Cost Retail Merchandise inventory, August 1 $363,000.00 $472,000.00 Net purchases $4,180,000.00 $5,428,000.00 Merchandise available for sale $4,543,000.00 $5,900,000.00 Ratio of cost to retail price: 77.00% Less: Sales $5,584,000.00 Merchandise inventory, August 31, at retail $316,000.00 Merchandise inventory, at estimated cost = $316,000 x 77% $243,320.00 2a. Estimate the cost of the merchandise inventory of Ranchworks Co. on November 30 by the gross profit method, presenting details of the computations. Ranchworks Co. Cost of the Merchandise Inventory November 30 Merchandise inventory, March 1 $221,000.00 Net purchases $2,943,000.00 Merchandise available for sale $3,164,000.00 Sales $5,152,000.00 Less: Estimated gross profit ($5,152,000 × 42%) $2,163,840.00 Estimated cost of merchandise sold $2,988,160.00 Estimated merchandise inventory, November 30 $175,840.00 2b. Assume that Ranchworks Co. took a physical inventory on November 30 and discovered that $165,300 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during March thru November? Estimated merchandise inventory, November 30 $175,840.00 Physical inventory count, November 30 $165,300.00 Estimated loss due to theft or damage,March 1–November 30 $10,540.00

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