Question

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

	Cost	Retail
Celebrity Tan Co.
Inventory, August 1	$ 260,000	$ 595,000
Transactions during August:
Purchases (net)	2,263,400	3,475,000
Sales		3,275,000
Ranchworks Co.
Inventory, March 1	$870,000
Transactions during March through November:
Purchases (net)	9,260,000
Sales	15,050,000
Estimated gross profit rate	40%

	Required:
1.	Determine the estimated cost of the inventory of Celebrity Tan Co. on August 31 by the retail method.* Enter all ratios as percents, rounded to one decimal place.
2.	a. Estimate the cost of the inventory of Ranchworks Co. on November 30 by the gross profit method.* b. Assume that Ranchworks Co. took a physical inventory on November 30 and discovered that $367,250 of inventory was on hand. What was the estimated loss of inventory due to theft or damage during March through November? * Refer to the list of Amount Descriptions provided for the exact wording of the answer choices for text entries.

Answer 1

Retail Inventory Method

The retail inventory method is based on the mark-up over the cost for arriving at retail price. If u mark is 25 percent,

an item bought for $80 would sell for (80+25%*80)= $100

Celebrity Tan Co.

	RetailValue
Inventory ,Aug 1	$595,000
Purchases	$3,475,000
Available for sale	$4,070,000
Sales during the period	$3,275,000
Retail value of ending inventory	$795,000
	Cost
Beginning Inventory	$260,000
Purchases	$2,263,400
Cost of goods available for sale	$2,523,400
Cost to retail Ratio	0.770503817	(2523400/3275000)
Retail value of ending inventory
Cost of ending inventory	$612,550.53	(795000*0.77050382)

Estimated cost of inventory on August31 of of Celebrity Tan Co.=$612,550.53

Ranchworks Co.

The gross profit method uses gross profit rate which is 40% in this case.

Sales during the period=15,050,000

Gross Profit(40%)=$15050000*40%=$6,020,000

Cost of goods sold =$15050000-$6,020,000=$9,030,000

	Costs
Inventory ,March1	$870,000
Purchases, march to Nov	$9,260,000
Available for sale	$10,130,000
Cost of goods sold	$9,030,000
Ending inventory	$1,100,000	(10130000-9030000)

Estimated inventory on November 30:$1,100,000

Estimated loss during the period=$1,100,000-$367,250=$732,750