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Retail Method; Gross Profit Method Selected data on merchandise inventory, purchases, and sales for Celebrity Tan...

  1. Retail Method; Gross Profit Method

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

    Cost Retail
    Celebrity Tan
    Merchandise inventory, August 1 $404,000 $512,000
    Transactions during August:
    Purchases (net) 4,652,000 5,888,000
    Sales 6,057,000
    Ranchworks Co.
    Merchandise inventory, March 1 $267,000
    Transactions during March through November:
    Purchases (net) 3,544,000
    Sales 5,454,000
    Estimated gross profit rate 34%

    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.

    Celebrity Tan
    Cost of the Merchandise Inventory
    August 31
    Cost Retail
    $ $
    $ $
    Ratio of cost to retail price: %
    $
    $

    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
    Cost
    $
    $
    $
    $

    2b. Assume that Ranchworks Co. took a physical inventory on November 30 and discovered that $198,700 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during March thru November?
    $

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Answer #1
  • Requirement 1

Celebrity Tan

Cost of the Merchandise Inventory

Aug-31

Cost

Retail

Merchandise Inventory Aug 1

$404,000

$512,000

Purchases (net)

$4,652,000

$5,888,000

Ratio of cost to retail price:

79%

$5,056,000

$6,400,000

Less: Sales

$6,057,000

Ending Inventory at Retail

$343,000

Ending Inventory at Cost

[$343000 x 79%]

$270,970

  • Requirement 2A

Ranchworks Co.

Cost of the Merchandise Inventory

Nov-30

Cost

Merchandise Inventory Mar 1

$267,000

Purchases (net)

$3,544,000

Cost of Goods available for sale

$3,811,000

Sales

$5,454,000

Less: Gross Profits at 34%

$1,854,360

Cost of Goods Sold

$3,599,640

Merchandise Inventory Nov 30

$211,360

  • Requirement 2B

Estimated loss of inventory = $ 211360 – 198700
= $ 12,660

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