Chapter 8

Inventory Estimation

PROBLEM 1: TRUE OR FALSE

1. FALSE - 56.25% [36% ÷ (100% - 36%)]
2. TRUE (40% ÷ 140%)
3. TRUE
4. FALSE – 74.07% (100% + 135%)
5. FALSE - ₱80

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. Solutions:
a) 200,000 – (160,000 x 100%/150%) = 93,333
b) 200,000 – (160,000 x 40%) = 136,000
c) 200,000 – (160,000 x 100%/125%) = 72,000
d) 200,000 – (160,000 x 60%) = 104,000

2. Solution:

2001
Net sales (788,000 - 16,000) 772,000
Cost of sales:
Inventory, beg. (Jan. 1, 2001) -
Purchases 860,000
Purchase returns & allow. (46,120)

Inventory, end. (Jan. 1, 2002) (173,120) (640,760)

Gross profit - 2001 131,240

GPR on sales - 2001 (131,240 ÷ 772K) 17%

Add: 3%

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 GPR on sales - 2002 20%

Inventory - 2002
beg. 173,120
Net purchases COGS
(692K - 64.6K) 627,400 652,800 [(836K - 20K) x 80%]
147,720 end.

Ending inventory, 2002 147,720

Less: Cost of undamaged goods (24K selling price x 80%) (19,200)
Less: Salvage value of damaged goods (3,600)
Inventory loss 124,920

3. Solutions:
Cost Retail
Inventory at January 1, 2002 45,000 75,000
Purchases 270,000 590,000
Freight-in 6,750
Markups 50,000
Markdowns (20,000)
TGAS 321,750 695,000
Net sales * (612,000)
Ending inventory at retail 83,000

*Sales 600,000
Estimated normal shrinkage 12,000
Net sales 612,000

Requirement (a): Average cost method

Cost ratio Total goods avail. for sale at cost
= Total goods avail. for sale at sales price or
(Average cost method)
at retail
(321,750 ÷ 695,000) = 46.29%

Ending inventory = (83,000 x 46.29%) = 38,420.70

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COGS = (321,750 – 38,420.70) = 283,329.30

Requirement (b): FIFO cost method

Cost ratio TGAS at cost less beg. inventory at cost
=
(FIFO cost method) TGAS at retail less beg. inventory at retail

(321,750 – 45,000) ÷ (695,000 – 75,000) = 276,750 ÷ 620,000 = 44.64%

Ending inventory = (83,000 x 44.64%) = 37,051.20

COGS = (321,750 – 37,051.20 ) = 284,698.80

PROBLEM 3: EXERCISES

1. Solution:
Inventory, January 1 ...................... ₱ 62,000
Purchases (₱114,000 - ₱4,000) ............. 110,000
Cost of goods available for sale .......... ₱172,000
Sales ..................................... ₱90,000
Gross profit (₱90,000 _ 40%) .............. 36,000
Estimated cost of goods sold .............. (54,000)
Estimated inventory, May 17 ............... ₱118,000
Actual inventory, May 17 .................. (55,000)
Theft loss ................................ ₱ 63,000

2. Solutions:
(1)

Beginning Inventory ................................... ₱147,800

+ Purchases ........................................ 295,000
+ Freight-in ....................................... 8,200
– Purchase returns ................................. 16,600
= Goods available for sale ......................... ₱434,400
– Cost of goods sold (486,400 x .75) ............... 364,800
= Inventory lost in fire ........................... ₱ 69,600

(2)

Beginning Inventory ................................... ₱147,800

+ Purchases ........................................ 295,000
+ Freight-in ....................................... 8,200
– Purchase returns ................................. 16,600
= Goods available for sale ......................... ₱434,400
– Cost of goods sold (486,400 ÷ 1.28) .............. 380,000
= Inventory lost in fire ........................... ₱ 54,400

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PROBLEM 4: CLASSROOM ACTIVITY

Solution:

Inventory
Jan. 1, 20x1 1,064,352
Purchases 482,016 630,644 COGS*
915,724 Jan. 7, 20x1

*Cost of goods sold is computed as follows:

Total sales (Jan. 1 to Jan. 6) 900,920
Multiply by: 70%
COGS 630,644

Inventory, Jan. 7, 20x1 915,724

Less: Goods in transit (Jan. 6 purchase) (126,516)
Less: Cost of undamaged goods (20,000)
Less: Salvage value of partially damaged goods (354 x 2) (708)
Inventory loss 768,500

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PROBLEM 5: MULTIPLE CHOICE
1. C
2. C
3. A
4. C

5. A
Solution:
Accounts payable Inventory
- beg. beg. 30,000
Payments Net Net
to suppliers 80,000 90,000 purchases purchases 90,000 120,000 COGS
end. 10,000 - end.

6. A
Solution:
Accounts payable
- beg.
Disbursements 290,000 315,000 Purchases (squeeze)
end. 25,000

Inventory
beg. 10,000
Purchases 315,000 325,000 COGS (squeeze)
- end.

7. B
Solution: Raw materials
beg. 11,000
Purchases 150,000 146,000 DM
15,000 end.

WIP
beg. 20,000
Direct materials 146,000
Direct labor 60,000
Factory overhead:
Indirect factory labor 30,000
Taxes and depn. - factory bldg. 10,000
Utilities (60% x 25,000) 15,000 257,000 COGM
24,000 end.

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 Finished goods
beg. 12,500
COGM 257,000 260,500 COGS
9,000 end.

8. D
Solution:
Raw materials
beg. -
Purchases 215,000 207,500 DM (squeeze)
7,500 end.

WIP
beg. -
DM 207,500
DL 100,000
FOH 150,000 457,500 COGM (squeeze)
- end.

Finished goods
beg. 17,500
COGM 457,500 475,000 COGS (squeeze)
- end.

9. B

10. A [200,000 + 300,000 – (600,000 x 70%)] = 80,000

11. D (270,000 + 7,600) ÷ (600,000 + 40,000 – 20,000) = 44.77%

(80,000 + 600,000 + 40,000 – 20,000 – 580,000) x 44.77% = 53,724

12. B 720,000 ÷ (900,000 + 100,000 – 40,000) = 75%

(900,000 + 100,000 – 40,000 – 680,000) x 75% = 210,000