Question

The records of Alaska Company provide the following information for the year ended December 31. At Cost At Retail January 1 beginning inventory $ 473,150 $ 928,950 Cost of goods purchased 2,699,294 6,281,150 Sales 5,513,700 Sales returns 46,400 Required: 1. Use the retail inventory method to estimate the company’s year-end inventory at cost. 2. A year-end physical inventory at retail prices yields a total inventory of $1,693,800. Prepare a calculation showing the company’s loss from shrinkage at cost and at retail.

Answer 1

SOLUTION

1.

Particulars	At cost ($)	At retail ($)
Beginning inventory	473,150	928,950
Cost of goods purchased	2,699,294	6,281,150
Goods available for sale	3,172,444	7,210,100
Less: Net sales at retail (5,513,700-46,400)		(5,467,300)
Ending inventory at retail	3,172,444	1,742,800
Cost to retail ratio (3,172,444/7,210,100*100) = 44%
Estimated ending inventory at cost (1,742,800*44%)	766,832

2.

Particulars	Amount ($)
Ending inventory at retail	1,742,800
Physical ending inventory	1,693,800
Shortage	49,000
Cost to retail ratio  (3,172,444/7,210,100*100) = 44%
Estimated ending inventory at cost (49,000*44%)	21,560