Flynn Company uses a perpetual inventory system and reported $533,000 of inventory at the beginning of the month based on a physical count of inventory

Business Feb 02, 2021

Flynn Company uses a perpetual inventory system and reported $533,000 of inventory at the beginning of the month based on a physical count of inventory. During the month, the company bought $38,000 of inventory and sold inventory that had cost $32,750.

At the end of the month, the physical count of inventory shows $535,000 on hand. How much shrinkage occurred during the month?

Expert Solution

The shrinkage occurred during the month is $3,250

Shrinkage = Ending inventory on records - Physical count ending inventory
Shrinkage = (Beginning Inventory + Purchased Inventory - Sold Inventory) - Physical count ending inventory
Shrinkage = ($533,000 + $38,000 - $32,750) - $535,000
Shrinkage = $538,250 - $535,000
Shrinkage = $3,250

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