Year end inventory at cost $55,902, at retail 84,700.
Questions:
A year-end physical inventory at retail prices yields a total inventory of $78,550. Prepare a calculation showing the company's loss from shrinkage at cost and at retail.
When the retail price is 84,700, the cost would 55,902, therefore how much of loss of inventory at cost when retail price is 78,500 = 51,843
Now the journal entry for shrinkage
would be
Losss of inventory (Shrinkage)4,059 -Debit
Inventory account _credit 4,059
Calculation of inventoryloss at cost= 55,902-51,843=4,059
To calculate the loss from shrinkage, we need to find the difference between the expected inventory value based on retail prices and the actual year-end inventory value. Let's break down the calculation step by step.
1. Find the expected inventory value based on retail prices:
Subtract the retail inventory value of $78,550 from the retail value of year-end inventory (84,700):
Expected retail value = 84,700 - 78,550 = $6,150
2. Calculate the loss from shrinkage at retail:
Subtract the actual retail inventory value (78,550) from the expected retail value (6,150):
Loss from shrinkage at retail = 6,150 - 78,550 = -$72,400
Note: A negative value indicates a loss.
3. Calculate the loss from shrinkage at cost:
To calculate the loss from shrinkage at cost, we need to determine the cost-to-retail ratio. Divide the year-end inventory at cost ($55,902) by the year-end inventory at retail ($84,700):
Cost-to-retail ratio = 55,902 / 84,700 ≈ 0.66
Multiply the loss from shrinkage at retail by the cost-to-retail ratio to get the loss from shrinkage at cost:
Loss from shrinkage at cost = -72,400 * 0.66 ≈ -$47,784
Therefore, the company's loss from shrinkage is approximately -$72,400 at retail and approximately -$47,784 at cost.