Gabriola Audio and Visual Ltd. (Gabriola) is a large retailer of audio-visual equipment and supplies. Recently, the owner read about the large amount of theft that occurred in retail stores in Canada.
While she never thought this was much of a problem for her, she wanted an idea of how much was being stolen so she could decide whether it was worthwhile to install theft prevention equipment or take other steps. Her accountant told her that if she counted the inventory on hand he could give her an idea of the amount of inventory being stolen.
The owner had the inventory counted after store closing one Sunday. According to the count, there was $1,440,000 of inventory on hand. The manager also told the accountant that since the year-end, $81,000 of merchandise had been returned to suppliers. At the last year-end, Gabriola had $1,910,000 of inventory. Since the year end, the store had purchased $802,500 of inventory and had sales of $1,300,000. The gross margin that Gabriola usually earns is 25%.

a. Determine the amount that might have been stolen from the store.
b. Is it possible to conclude with certainty that the amount you calculated in (a) was due to theft?
c. Why was it necessary to count the inventory to estimate the amount of inventory that was stolen?
d. If Gabriola had used a perpetual inventory control system, would a count of the inventory have been required to provide the manager with the information she required?

  • CreatedFebruary 26, 2015
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