Bullock\'s accounting records indicated the following information: Inventory, 1/

Question

Bullock's accounting records indicated the following information:

Inventory, 1/1/15                                       $   600,000

Purchases during 2015                               3,000,000

Sales during 2015                                       3,800,000

A physical inventory taken on December 31, 2015, resulted in an ending inventory of $700,000. Bullock's gross profit on sales has remained constant at 25% in recent years. Bullock suspects some inventory may have been taken by a new employee. At December 31, 2015, what is the estimated cost of missing inventory?

Explanation / Answer

Sales during the Year = $3800000

Cost of Goods Sold = Beginning inventory+Purchases - Ending Inventory

Actual Cost of goods sold = 600000+3000000-700000 = $2360000

Gross Profit =25% of sales so 3800000x25% = $950000

CoGS = sales - Gross profit = 3800000 - 950000 = $2850000

Estimated cost of Missing Inventory = 2850000-2360000 = $490000

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