Song Meister is a popular music store. During the current year, the company's cost of goods available for sale amounted to $330,000. The retail sales value of this merchandise amounted to $600,000. Sales for the year were $520,000.
Instructions
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. At year-end, Song Meister takes a physical inventory. The general manager walks through the store counting each type of product and reading its retail price into a tape 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 of $75,000 at retail sales prices.
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.
2. Determine the estimated shrinkage losses (measured at cost) incurred by Sing Along during the year.
3. Compute Song Meister's gross profit for the year. (Include inventory shrinkage losses in the cost of goods sold.)
c. What controls might Song Meister implement to reduce inventory shrinkage?