Chapter 8

Inventory Estimation

PROBLEM 1: FOR CLASSROOM DISCUSSION

1. Solutions:
(a)
₱160,000/1.50 = ₱106,667
₱200,000 - ₱106,667 = ₱93,333 ending inventory

(b)
₱160,000  (100% - 60%) = ₱64,000
₱200,000 - ₱64,000 = ₱136,000 ending inventory

(c)
₱160,000/1.25 = ₱128,000
₱200,000 - ₱128,000 = ₱72,000 ending inventory

(d)
₱160,000  (100% - 40%) = ₱96,000
₱200,000 - ₱96,000 = ₱104,000 ending inventory

2. Solution:

2001 2002
Gross Gross
Profit % Profit
%
Sales (net) ₱772,000 100% ₱816,00 100%
0
Cost of goods sold:
Beginning ₱ 0 ₱173,12
inventory 0
Purchases (net) 813,880 627,400
Goods available for ₱813,880 ₱800,52
sale 0
Ending inventory 173,120 147,720 **
*
Cost of goods sold ₱640,760 83% ₱652,80 ** 80%
0
Gross profit on ₱131,240 17% ₱163,20 20%
sales 0
* 17% + 3% = 20%

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** ₱816,000 x 80% =
₱652,800
*** ₱800,520 - ₱652,800 = ₱147,720

December 31, 2002

Ending inventory (cost) ..................... ₱147,720
Less: Cost of undamaged inventory ₱19,200
(₱24,000 x .80) ....................
Net realizable value of damaged merchandise . 3,600 22,800
Inventory loss due to fire .................. ₱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

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%

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Ending inventory = (83,000 x 44.64%) = 37,051.20
COGS = (321,750 – 37,051.20 ) = 284,698.80

PROBLEM 2: 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

PROBLEM 3: MULTIPLE CHOICE

1. B

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

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3. 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

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

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

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