Question

Pharoah Company's accounting records indicated the following information: Inventory, 1/1/20 $ 1840000 Purchases during 2020 9400000 Sales during 2020 11840000 A physical inventory taken on December 31, 2020, resulted in an ending inventory of $2140000. Pharoah's gross profit on sales has remained constant at 25% in recent years. Pharoah suspects some inventory may have been taken by a new employee. At December 31, 2020, what is the estimated cost of missing inventory

Answer 1

The estimated cost of missing inventory is $300,000

Step-by-step explanation:

In order to calculate the estimated cost of missing inventory first we need to calculate the cost of goods sold and the closing inventory as follows:

The cost of goods sold = $11,840,000*0.75 = $8,880,000

Closing Inventory = opening inventory + Purchases - Cost of goods sold

= $1,840,000 + $9,400,000 - $8,880,000 = $2,440,000

According to the given data physical inventory taken on December 31, 2020 resulted in an ending inventory of $2,140,000

Therefore, cost of Missing Inventory =$2,440,000-$2,140,000= $300,000