Question

The Shake Shop began the current month with inventory costing $17,500, then purchased inventory at a cost of $44,000. The perpetual inventory system indicates that inventory costing $46,710 was sold during the month for $48,000. If an inventory count shows that inventory costing $13,900 is actually on hand at month-end, what amount of shrinkage occurred during the month?

a. $14,790
b. $13,895
c. $4,000
d. $890

Answer 1

The shrinkage for The Shake Shop is calculated as (Option d) $890, which is the difference between the expected ending inventory and the actual inventory on hand at the end of the month.

Step-by-step explanation:

To determine the amount of shrinkage that occurred during the month for The Shake Shop, we need to follow a series of steps to calculate the difference between the expected inventory and the actual inventory. The formula for shrinkage is: Beginning Inventory + Purchases - Sales - Ending Inventory = Shrinkage. Following this, we calculate as:

Beginning Inventory: $17,500
Purchases: $44,000
Cost of Goods Sold (Sales): $46,710
Ending Inventory (actual count): $13,900

Calculating shrinkage:

• Beginning Inventory + Purchases = $17,500 + $44,000 = $61,500
• Total goods available for sale - Cost of Goods Sold = $61,500 - $46,710 = $14,790
• Expected Ending Inventory (without shrinkage) - Actual Ending Inventory = $14,790 - $13,900 = $890

Therefore, the amount of shrinkage that occurred during the month is $890, which corresponds to option (d).