Question

Coronado Company's records indicate the following information for the year:

Merchandise inventory, 1/1 $559000
Purchases 2264000
Net sales 3200000

On December 31, a physical inventory determined that ending inventory of $494000 was in the warehouse. Coronado's gross profit on sales has remained constant at 30%. Coronado suspects some of the inventory may have been taken by some new employees.
At December 31, what is the estimated cost of missing inventory?

Answer 1

$89,000

Step-by-step explanation:

The movement in the balance of inventory at the start and end of a period is as a result of sales and purchases. While sales reduces the balance in inventory, purchases increases the balance. This may be expressed mathematically as

Opening balance + purchases - cost of goods sold = closing balance

The gross profit is the difference between the sales and the cost of goods sold. Given that Coronado's gross profit on sales has remained constant at 30%, the gross profit

= 30% × $3,200,000

= $960,000

Cost of goods sold = $3,200,000 - $960,000

= $2,240,000

$559000 + $ 2264000 - $2240000 = expected closing balance

expected closing balance = $583,000

Given that a physical inventory determined that ending inventory of $494000 was in the warehouse

The estimated cost of missing inventory

= $583,000 - $494,000

= $89,000