Meyer’s Men’s Shop Corp. takes a year-end physical inventory at marked selling prices and reduces the total to a cost basis for year-end statement purposes. Meyer’s also uses the retail method to estimate the amount of inventory that should be on hand at year-end. By comparing the two totals, it is able to determine inventory shortages. The information at the end of December is as follows:
|
At retail |
At cost |
|
|
Sales |
$234,680 |
|
|
Sales returns and allowances |
3,740 |
|
|
Opening inventory |
36,200 |
$24,470 |
|
Purchases |
239,800 |
166,770 |
|
Purchases returns and allowances |
3,900 |
2,830 |
|
Ending inventory |
40,900 |
Required:
- Calculate the estimated ending inventory at cost using the retail inventory method.
- Calculate the amount of inventory discrepancy at cost.
- Why might this discrepancy occur?
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