Decent Company operates a large discount store and uses the retail method to estimate the cost of ending inventory. Recently, the company has had unusually heavy inventory losses, which management suspects have been due to shoplifting or employee pilferage. To estimate the amount of the loss, the company has taken a physical inventory and will compare the results with the estimated cost of inventory. Data from the company’s accounting records are as follows:

REQUIRED

1. Using the retail method, prepare a schedule to estimate the dollar amount of the store’s month-end inventory at cost.

2. Use the store’s cost to retail ratio to reduce the retail value of the physical inventory to cost.

3. Calculate the estimated amount of inventory shortage at cost and at retail.

4. Many retail chains use the retail method because they find it an efficient way to operate. Why do you think they find this method efficient?

At Cost $51,488 71,733 (2,043) 950 At Retail $ 74,300 108,500 (3,200) August 1 beginning inventory Purchases returns and allowances Freight-in Sales Sales returns and allowances August 31 physical inventory at retail 109,183 (933) 62,450