Fuentes Company operates a large discount store and uses the retail method to estimate the cost of ending inventory. Management suspects that in recent weeks there have been unusually heavy losses from shoplifting or employee pilferage. To estimate the amount of the loss, the company has taken a physical inventory and will compare the results with the estimated cost of inventory. Data from the accounting records of Fuentes Company are as follows:

Required 1. Using the retail method, prepare a schedule to estimate the dollar amount of the store’s month-end inventory at cost.
2. Use the store’s cost to retail ratio to reduce the retail value of the physical inventory to cost.
3. Calculate the estimated amount of inventory shortage at cost and at retail.
4. User Insight: Many retail chains use the retail method because it is efficient. Why do you think using this method is an efficient way for these companies to operate?
Gross Profit Method

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October I beginning inventory Purchases Purchases returns and allowances Freight-in At Cost $51,488 71,733 Sales Sales returns and allowances October 31 physical inventory at retail At Retail $ 74,300 108,500 (2,043) (3,200) 950 109,183 (933) 62,450