### Estimation of Inventory Cost for Ranchworks Co. on November 30**Objective:** Estimate the cost of inventory on November 30 using the gross profit method.**Line Item Description and Costs:**- **Inventory, March 1:** - Cost: $880,000 ✔️ - **Net Purchases:** - Cost: $9,500,000 ✔️ - **Merchandise Available for Sale:** - Cost: $10,380,000 ✔️ - **Sales:** - Cost: $15,800,000 ✔️- **Estimated Gross Profit:** - Calculated but incorrect value: $6,004,000 ❌ - **Estimated Cost of Goods Sold:** - Cost: $9,796,000 ✔️- **Estimated Inventory, November 30:** - Cost: $584,000 ✔️### Explanation:**Calculation Process:**1. **Merchandise Available for Sale** is calculated by adding the beginning inventory on March 1 and net purchases.2. **Sales** are given as part of the estimation process.3. **Estimated Gross Profit** is the difference between sales and estimated cost of goods sold, however, there's an error in the value indicated with an "X."4. **Estimated Cost of Goods Sold** is correctly calculated and aligns with the methodology.5. **Estimated Inventory** is computed by subtracting the cost of goods sold from the merchandise available for sale, leading to the final inventory figure.**Note:** Errors and corrections are marked with check and cross symbols for accurate presentation of data. **Retail Method; Gross Profit Method**Selected data on inventory, purchases, and sales for Celebrity Tan Co. and Ranchworks Co. are as follows:| | **Cost** | **Retail** ||----------------------------------|----------|--------------|| **Celebrity Tan Co.** | | || Inventory, August 1 | $300,000 | $575,000 || Transactions during August: | | || Purchases (net) | 2,021,900 | 3,170,000 || Sales | | 3,250,000 || | | || **Ranchworks Co.** | | || Inventory, March 1 | $880,000 | || Transactions during March through November: | | || Purchases (net) | 9,500,000 | || Sales | | 15,800,000 |Estimated gross profit rate = 38%**Required:**1. Determine the estimated cost of the inventory of Celebrity Tan Co. on August 31 by the retail method, presenting details of the computations. For those boxes in which you must enter subtracted or negative numbers use a minus sign.**Celebrity Tan Co. Estimated Cost of Inventory August 31**| **Line Item Description** | **Ratio** | **Cost** | **Retail** ||--------------------------------------------|-----------|-----------|-------------|| Inventory, August 1 | | $300,000 | $575,000 || Net purchases | | 2,021,900 | 3,170,000 || Merchandise available for sale | | 2,321,900 | 3,745,000 || Ratio of cost to retail price | 62% | | || Sales | | | 3,250,000 || Inventory, August 31, at retail | | | 495,000 || Inventory, August 31, at estimated cost | | 306,900 | |**Explanation of Calculations

The gross profit method estimates the value of inventory by applying the company's historical gross…

2a. Estimate the cost of the inventory of Ranchworks Co. on November 30 by the gross profit method, presenting details of the computations. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Line Item Description Inventory, March 1 ✔ Net purchases ✓ Merchandise available for sale ✓ Sales- Ranchworks Co. Estimated Cost of Inventory November 30 Estimated gross profit Estimated cost of goods sold V Estimated inventory, November 30 ✔ Cost 15,800,000 6,004,000 X Cost 880,000 9,500,000 10,380,000 ✓ 9,796,000 X 584,000 ✓

2a. Estimate the cost of the inventory of Ranchworks Co. on November 30 by the gross profit method, presenting details of the computations. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Line Item Description Inventory, March 1 ✔ Net purchases ✓ Merchandise available for sale ✓ Sales- Ranchworks Co. Estimated Cost of Inventory November 30 Estimated gross profit Estimated cost of goods sold V Estimated inventory, November 30 ✔ Cost 15,800,000 6,004,000 X Cost 880,000 9,500,000 10,380,000 ✓ 9,796,000 X 584,000 ✓

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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