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SOL.-MAN._CHAPTER-8_INVENTORY-ESTIMATION
Accountancy (Acc200)
Laguna University
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Chapter 8
Inventory Estimation
PROBLEM 1: TRUE OR FALSE
1 – (50,000 gross profit ÷ 150,000 COGS) = 33% GPR
based on cost
2 (40% GPR ÷ 60% COGS) = 66%
3 (33% GPR ÷ 133% SALES) = 25%
4
(10 + 140) = 150 TGAS;
(120 x 100%/120%) = 100 COGS;
150 – 100 = 50 ending inventory
5
Inventory
beg. 20
Net purchases
100
120 COGS (squeeze) -
PROBLEM 2: MULTIPLE CHOICE – THEORY
1
Choice (a) is incorrect. PAS 2 allows the use of estimates if the
estimate reasonably approximates the cost.
Choice (b) is incorrect. The GPR based on cost is 25% (20% ÷ 80%).
Choice (c) is incorrect. The cost ratio is 80% (100% ÷ 125%).
2
3
4
5
PROBLEM 3: MULTIPLE CHOICE – COMPUTATIONAL
1
Solution:
GPR based on sales
Inventory beg. 80, Net purchases (340,000 – 4,000 + 12,000) 348,
339,
COGS (454K – 2K) x 75% 89,000 end.
GPR based on cost
Inventory beg. 80, Net purchases (340,000 – 4,000 + 12,000)
348,
0
361,
0
COGS (454K – 2K) x 100% ÷ 125% 66,400 end.
2
Solution:
Inventor y beg. 162,
Net purchases 3,412,
3,018,
0 COGS (4 - 10K) x 65% 555,400 end. (56,000) Goods in-transit (443, ) Actual inventory 56,400 Loss due to theft
4
Solution:
Accounts payable Inventory - beg. beg. 30, Payments to suppliers 80,000 90,
Net purchases
Net purchases 90,000 120,000 COGS end. 10,000 - end.
5
Solution:
6
Solution:
Raw materials
beg. 11,
Purchases 150,000 146,000 DM
15,000 end.
WIP
beg. 20,
Direct materials 146,
Direct labor 60,
Factory overhead:
Indirect factory labor 30,
Taxes and depn. - factory bldg. 10,
Utilities (60% x 25,000) 15,000 257,
COGM
24,000 end.
Finished goods
beg. 12,
COGM 257,
260,
COGS
9,000 end.
7
Solutions:
Cost Retail Inventory at January 1, 2002 45,000 75, Purchases 270,000 590, Freight-in 6, Markups 50, Markdowns (20,000) TGAS 321,750 695,
Net sales * (612,000) Ending inventory at retail 83,
*Net sales 590, Add back: Sales discounts 10, Normal shrinkage 12, Adjusted net sales 612,
Average cost method Cost ratio (Average cost method)
=
Total goods avail. for sale at cost Total goods avail. for sale at sales price or at retail (321,750 ÷ 695,000) = 46%
Ending inventory = (83,000 x 46%) = 38,420.
COGS = (321,750 – 38,420) = 283,329.
FIFO cost method Cost ratio (FIFO cost method)
=
TGAS at cost less beg. inventory at cost TGAS at retail less beg. inventory at retail
Average cost ratio = (113,600 ÷ 148,000) = 76%
Ending inventory at retail 64, Multiply by: Average cost ratio 76% Ending inventory at cost 49,
Total goods available for sale at cost 113, Ending inventory at cost ( 49,126) Cost of goods sold 64,
9
Solution:
FIFO cost ratio: Cost ratio (FIFO cost method) = TGAS at cost less beg. inventory at cost TGAS at retail less beg. inventory at retail FIFO cost ratio = [(113,600 – 20,000) ÷ (148,000 – 28,000)] = 78%
Ending inventory at retail 64, Multiply by FIFO cost ratio 78% Ending inventory at cost 49,
Total goods available for sale at cost 113, Ending inventory at cost ( 49,920) Cost of goods sold 63,
10
Solution:
Cost Retail Inventory, beg. 36, Purchases 320, Purchase discounts (3,000) Freight-in 18,
TGAS 371,000 530,000 (a)
(a) Sales 454, Sales returns (2,000) Ending inventory @ sales price 78, TGAS @ sales price 530,
Cost ratio = Total goods avail. for sale at cost Total goods avail. for sale at sales price
Cost ratio = 371,000 ÷ 530,000 = 70%
Ending inventory @ sales price 78, Multiply by: Cost ratio 70%
Ending inventory @ cost
54,
0
PROBLEM 5: FOR CLASSROOM DISCUSSION
1:
GPR based on sales
GPR based on cost
Net sales 600, Less: COGS
400,000 (200K ÷ 600K) (200K ÷ 400K)
Gross profit
200,000 33% 50%
2. Solution: (40% ÷ 60%) = 66%
3. Solution: (50% mark-up based on cost ÷ (100% cost + 50%
mark-up) = 33 1/3%
4. Solution: (100% ÷ 142%) = 70%
5:
Accounts payable 30,000 beg. Payments 480,000 510,000 Net purchases (squeeze) end. 60,
Inventory beg. 80, Net purchases
510,
427,
COGS (585K - 15K) x 75% Freight-in 5, 167,500 end. (28,000) goods in-transit (32,000) consigned goods (2,500) salvage value 105,000 Inventory loss
6:
Inventory beg. 80, Gross purchases
517,
3,000 Purchase returns Freight-in 5,000 4,000 Purchase discounts
427,
COGS
(585K - 15K) x 100%/ 1/3% 167,500 end. (33,500) Undamaged 167) (20% x
(25,125) Salvage value (50% x 167 x 30%) 108,875 Inventory loss
7:
Cost Retail
Inventory, beg. 300,
375,
0
Net purchases (a) 1,056,000 1,495, Departmental Transfers-In 2,000 3, Net mark-ups (20,000 – 2,000) 18, Net mark-downs (6,000 – 1,000) (5,000) Abnormal spoilage (8,000) (11,000) TGAS 1,350,000 1,875, Net sales (b) (1,375,000) EI @ retail 500,
(a) @ cost: 1,180,000 + 30,000 - 150,000 - 4,000 = 1,056,000 ;
@ retail: 1,500,000 – 5,000 = 1,495,
(b)
Normal spoilage 400 Sales 1,428, Sales returns (56,000) Employee discounts 2, Net sales 1,375,
Cost ratios:
SOL.-MAN._CHAPTER-8_INVENTORY-ESTIMATION
Course: Accountancy (Acc200)
University: Laguna University
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