A Retailer Has A Beginning Monthly Inventory Valued At $10,0

A Retailer Has A Beginning Monthly Inventory Valued At 100000 At Ret

A retailer has a beginning monthly inventory valued at $100,000 at retail and $61,000 at cost. Net purchases during the month are $190,000 at retail and $115,000 at cost. Transportation charges are $10,500. Sales are $225,000. Markdowns and discounts equal $30,000. A physical inventory at the end of the month shows merchandise valued at $15,000 (at retail) on hand. Compute the following: a. Total merchandise available for sale – at cost and at retail. b. Cost complement c. Ending retail book value of inventory. d. Stock shortages. e. Adjusted ending retail book value. f. Gross profit.

Paper For Above instruction

Introduction

The retail industry relies heavily on accurate inventory management to determine profitability and operational efficiency. This paper aims to provide a comprehensive analysis of inventory calculations for a retailer, based on provided financial data. The calculations will include total merchandise available for sale, cost complement, ending inventory at retail, stock shortages, adjusted inventory values, and gross profit. These metrics are essential for assessing inventory turnover and gross margin, which are critical indicators of retail performance.

Calculation of Total Merchandise Available for Sale

The first step involves computing the total merchandise available for sale both at retail and at cost. The beginning inventory provides an initial stock level, and adding net purchases, including transportation costs, results in the total goods available during the period.

At retail:

Beginning inventory = $100,000

Net purchases = $190,000

Transportation charges = $10,500

Total merchandise available at retail = Beginning inventory + Net purchases + Transportation

= $100,000 + $190,000 + $10,500 = $300,500

At cost:

Beginning inventory = $61,000

Net purchases = $115,000

Transportation charges = $10,500

Total merchandise available at cost = Beginning inventory + Net purchases + Transportation

= $61,000 + $115,000 + $10,500 = $186,500

Calculation of Cost Complement

The cost complement indicates the proportion of inventory at retail that is at cost. It is calculated as:

Cost complement = Total cost of goods available for sale / Total retail value of goods available for sale

= $186,500 / $300,500 ≈ 0.6213 or 62.13%

This ratio is used to convert retail ending inventory into cost.

Ending Retail Book Value of Inventory

Given the physical inventory count:

Ending inventory (retail) = $15,000

Stock Shortages

Stock shortages are determined by comparing the calculated ending inventory (based on the cost complement) to the physical count.

Expected ending inventory at retail:

Expected at retail = Total merchandise available at retail - Sales - Markdowns/discounts

= $300,500 - $225,000 - $30,000 = $45,500

Actual physical inventory = $15,000

Shortage:

Stock shortages = Expected ending inventory - Physical inventory

= $45,500 - $15,000 = $30,500

This indicates unaccounted stock or theft, which must be addressed in inventory valuations.

Adjusted Ending Retail Book Value

Adjusting for shortages:

Adjusted ending inventory at retail = Physical count + Shortages

= $15,000 + $30,500 = $45,500

This adjustment aligns the recorded inventory with observed physical stock.

Gross Profit Calculation

Gross profit is a key profitability metric, derived from net sales minus cost of goods sold (COGS), which is based on the cost complement.

First, estimate COGS:

COGS = Net sales at retail * cost complement

= ($225,000) * 0.6213 ≈ $139,792.50

Gross profit:

Gross profit = Net sales - COGS

= $225,000 - $139,792.50 = $85,207.50

This figure reflects the profit before administrative and operating expenses but after accounting for inventory costs.

Conclusion

This analysis offers valuable insights into inventory management, profitability, and operational efficiency. Accurate calculation of total inventory available, adjustments for shortages, and gross profit are essential for strategic planning and financial reporting within retail operations. Regular physical counts and proper accounting methods ensure reliable data for decision-making.

References

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