Between The Ears (BTE.com) is a popular Internet music store. During the current year, the company’s cost of goods available for sale amounted to $473,000. The retail sales value of this merchandise amounted to $836,000. Sales for the year were $720,000.
At year-end, BTE.com takes a physical inventory. The general manager walks through the warehouse counting each type of product and reading its retail price into a recorder. From the recorded information, another employee prepares a schedule listing the entire ending inventory at retail sales prices. The schedule prepared for the current year reports ending inventory at $38,421 at retail sales prices.
a. Using the retail method, estimate (1) the cost of goods sold during the year and (2) the inventory at the end of the year.
b-1. Use the cost ratio computed in part a to reduce the inventory counted by the general manager from its retail value to an estimate of its cost.
b-2. Determine the estimated shrinkage losses (measured at cost) incurred by BTE.com during the year.
b-3. Compute BTE.com’s gross profit for the year. (Include inventory shrinkage losses in the cost of goods sold.)