Gecelle Company reported during the current year: Beginning inventory 500,000 Net purchases 2,500,000 Net sales 3,200,000 A physical count at year-end resulted in an inventory of P575, 000

Economics Dec 18, 2020

Gecelle Company reported during the current year:
Beginning inventory 500,000
Net purchases 2,500,000
Net sales 3,200,000

A physical count at year-end resulted in an inventory of P575, 000. The gross profit on sales had remained constant at 25%.
The entity suspected that some inventory may have been taken by a new employee.
What is the estimated cost of missing inventory at year-end?

Expert Solution

Cost of goods sold = Sales * (1 - Gross Profit)

= 3200000 * (1 - 25%)

= 2400000

Cost of goods sold = Opening inventory + Production - Closing inventory

2400000 = 500000 + 2500000 - Closing inventory

Closing inventory = (500000 + 2500000)- 2400000

= 600000

Actual physical inventory = 575000

Missing inventory = 600000 - 575000

= 25000

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