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A. Macarty Company's records indicate the following information for the year: Merchandise inventory, 1/1 $ 550,000 Purchases 2,250,000 Net sales 3,100,000 On December 31, a physical inventory determined that ending inventory of $600,000 was in the warehouse. A. Macarty's gross profit on sales has remained constant at 30%. A. Macarty suspects some of the inventory may have been taken by some new employees. At December 31, what is the estimated cost of missing inventory

User Roopunk
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Final answer:

To estimate the cost of missing inventory for A. Macarty Company, we calculated the expected and actual cost of goods sold (COGS). A comparison revealed a negative difference, suggesting no inventory is missing or there's an overestimation or error in calculation.

Step-by-step explanation:

Calculating the Estimated Cost of Missing Inventory

To calculate the estimated cost of the missing inventory for A. Macarty Company, we need to determine the expected cost of goods sold (COGS) and compare it with the actual COGS. The expected COGS can be calculated based on the gross profit percentage, which remains constant at 30%. This means the cost percentage is 70% because gross profit plus cost percentage must equal 100%.

First, we need to calculate the expected COGS:


  • Expected COGS = Net sales x Cost percentage

  • Expected COGS = $3,100,000 x 70%

  • Expected COGS = $2,170,000

Next, we determine the actual COGS using the formula:


  • Actual COGS = Opening inventory + Purchases - Ending inventory

  • Actual COGS = $550,000 + $2,250,000 - $600,000

  • Actual COGS = $2,200,000

Using these figures, we can estimate the cost of the missing inventory:


  • Estimated Cost of Missing Inventory = Expected COGS - Actual COGS

  • Estimated Cost of Missing Inventory = $2,170,000 - $2,200,000

  • Estimated Cost of Missing Inventory = - $30,000

Since we arrive at a negative number, this suggests that there may not actually be missing inventory, but rather an overestimation of the ending inventory or a calculation error.

User Larpee
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