Question

Question #4

V. Market is a retail store selling small appliances and sporting goods. The business follows a policy of selling all merchandize at a price exactly twice its cost to the store and uses a periodic inventory system.

            Net sales ……………………………            $580,000

            Inventory, January 1 ……………….             $58,000

            Purchases during the year ………….             $297,000

A physical count indicates merchandize costing $49,250 is on hand at December 31.

Required:

1. Determine the gross profit for the year.

2. On seeing the gross profit figures the store owner makes the following comment: “Inventory shrinkage losses (shoplifting) are really costing me a lot”. Do you agree with the owner? If yes, how much?

3. Assume the store can eliminate the shoplifting by hiring a security guard at a cost of $1,800 per month. Would this strategy be profitable? Explain.

Answer 1

Solution:

1. gross profit = Net sale + closing inventory - opening inventory - purchases during the year

= 580,000 + 49,250 - 58,000 - 297,000

= $274,250

2. Due to Shoplifting the gross profit gross profits are fall to 47.28% of sales, which is less than 50% of sales, it is not a lot of much loss for a bussiness.

3. in case of hiring a security guard it cost the owner $21,600 for avoiding Shoplifting which result in increase of closing inventory to $65,000 which is $15,750 more than $49,250.

conclution : Hiring security gurd is not a good option.