Question

___ is the difference between the recorded value of inventory based on merchandise bought and received and the value of the actual merchandise in stores and distribution centers divided by retail sales during the period.

A. loss margin

B. shrinkage

C. obsolescence

D. break-even point

E. profit margin

Answer 1

shrinkage

Step-by-step explanation:

It is a contraction which generated a loss for the firm as the amount of the book value of the inventory is less than the amount of inventory which is actually in the stores and distribution center.

The company's book values inventory at X

while physical count and market value of these count give value Y

as X > Y the company must recognize a shrinkage of their inventory