Question

The records of Alaska Company provide the following information for the year ended December 31.
  

	At Cost			At Retail
January 1 beginning inventory	$	471,550		$	927,350
Cost of goods purchased		3,420,176			6,279,550
Sales					5,497,700
Sales returns					44,800

  
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 $1,677,800. Prepare a calculation showing the company’s loss from shrinkage at cost and at retail.
  

Answer 1

1)		Estimated Inventory
	Goods available for sale					At cost	At retail
	Beginning inventory					471,550	927,350
	cost of goods purchased					3,420,176	6,279,550
	Goods available for sale					3,891,726	7,206,900
	sales						5,497,700
	less:Sales return						-44,800
	Net sales						5,452,900
	Ending inventory at retail (goods available-net sales)						1,754,000
	Cost ratio:	3,891,726/7,206,900=		0.54	or 54%
	Ending iventory at cost (1,754,000*54%)=					947160
2)						At cost	At retail
	Estimated inventory (part 1)					947160	1,754,000
	Physical inventory (		54% cost ratio)			906012	1,677,800
	Inventory shortage					41148	76,200