Response to the following problem:
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
|
$ 24,420
|
|
Purchases
|
239,800
|
166,770
|
|
Purchases returns and allowances
|
3,900
|
2,830
|
|
Ending inventory
|
40,900
|
|
Required:
1. Calculate the estimated ending inventory at cost using the retail inventory method.
2. Calculate the amount of inventory discrepancy at cost.
3. Why might this discrepancy occur?