The president of Luna Sea Corporation is concerned that the year-end inventory amounting to $5,000 at cost is less than expected. Although a physical count was made and the costing was accurately calculated using FIFO, the president asks you to estimate the year-end inventory using the following information for the year:
|
At retail |
At cost |
|
|
Sales |
$160,000 |
|
|
Sales returns and allowances |
10,000 |
|
|
Purchases |
164,000 |
$80,000 |
|
Purchases returns and allowances |
4,000 |
2,000 |
|
Transportation-in |
1,000 |
|
|
Opening inventory |
20,000 |
11,000 |
Required:
- Calculate the estimated ending inventory at cost using the retail inventory method. Assume mark-up is 200%.
- Calculate the amount of inventory discrepancy at cost.
- Why might this discrepancy occur?
- What changes to the inventory system might you suggest to the president?
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