Question

keen company's accounting records indicated the following information: inventory, 1/1/25 $ 1,800,000 purchases during 2025 9,000,000 sales during 2025 11,400,000 a physical inventory was taken on december 31, 2025 and resulted in an ending inventory of $2,100,000. keen's gross profit on sales has remained constant at 25% in recent years. keen suspects some inventory may have been taken by a new employee. at december 31, 2025, what is the estimated cost of missing inventory? $150,000. $450,000. $600,000. $750,000.

Answer 1

The estimated cost of the missing inventory at Keen Company is $150,000, calculated by using the gross profit rate of 25% to determine the cost of goods sold and then figuring out the expected ending inventory, which is then compared to the actual ending inventory.

Step-by-step explanation:

To estimate the cost of the missing inventory for Keen Company, we must first calculate the expected ending inventory using the gross profit on sales. With sales of $11,400,000 and a gross profit rate of 25%, the cost of goods sold (COGS) then is 75% of sales, or $8,550,000 (0.75 x 11,400,000). We use the formula: Beginning Inventory + Purchases - COGS = Ending Inventory. Plugging in the numbers: $1,800,000 (Beginning Inventory) + $9,000,000 (Purchases) - $8,550,000 (COGS) = $2,250,000 (Expected Ending Inventory).

However, a physical inventory indicates an actual ending inventory of $2,100,000. To find the estimated cost of missing inventory, subtract the actual ending inventory from the expected ending inventory: $2,250,000 - $2,100,000 = $150,000. Therefore, the estimated cost of the missing inventory is $150,000.

Answer 2

To estimate the missing inventory, the cost of goods sold (COGS) is calculated using the gross profit margin of 25%, resulting in an expected ending inventory of $2,250,000. Comparing this with the physical ending inventory of $2,100,000, the estimated cost of missing inventory is found to be $150,000.

Step-by-step explanation:

To estimate the cost of the missing inventory, we first need to calculate the expected ending inventory using the gross profit percentage and the sales data provided. Knowing that the gross profit is 25% of sales, we can estimate the cost of goods sold (COGS) and then the expected ending inventory.

Calculating the COGS

Sales during 2025: $11,400,000

Gross Profit (25% of sales): $11,400,000 * 0.25 = $2,850,000

Net Sales (Sales - Gross Profit): $11,400,000 - $2,850,000 = $8,550,000

Calculating the Expected Ending Inventory

Beginning Inventory: $1,800,000

Purchases during 2025: $9,000,000

COGS (Beginning Inventory + Purchases - Expected Ending Inventory): $1,800,000 + $9,000,000 - $8,550,000 = $2,250,000 (Expected Ending Inventory)

Estimating the Missing Inventory

Physical Ending Inventory: $2,100,000

Estimated Cost of Missing Inventory: $2,250,000 (Expected Ending Inventory) - $2,100,000 (Physical Ending Inventory) = $150,000