Inventory Activities II

Problem 1: Ling Co. uses average retail inventory method.
The following information is available for the

current year:
 The beginning in inventory is consist of P2,200,000 at retail with an average cost rate of 50%.
 Purchases for the was P15,800,000 at cost and P26,300,000 at retail, purchases return was P600,000 at
cost and P1,000,000. During the year freight-in incurred was P400,000 and purchases allowance was
P300,000.
 Departmental transfer in was P400,000 at cost and at P800,000 at retail.
 Net markups and markdowns were P600,000 and P900,000 respectively.
 Sales for the year totaled P24,700,000 of which P1,400,000 were sold to employee which were given a
discount of 30%. Sales return and sales discount were P350,000 and P200,000 respectively.
 During the loss from breakage was P50,000.
1) The cost ratio for the current year is ___.

2) The ending inventory at cost is ____.
3) If the inventory at retail based on physical count is P1,700,000, the inventory shortage is _____.
Problem 2: The Blaze Co. manufactures highly flammable products. On May 31, 2015, a fire completely destroyed
its factory and all the work in process inventory therein. However, some records were saved which showed the
following inventory balances as of May 31, 2010 at cost:
Raw materials P 30,000
Finished goods 60,000
Supplies 5,000
And as of January 1, 2010, the inventories were as follows:
Raw materials P 15,000
Work in process 50,000
Finished goods 70,000
Supplies 2,000
2010 2011 2012 2013 2014
Sales 300,000 320,000 330,000 250,000 280,000
Gross Profit 86,200 102,400 108,900 62,500 84,000
Sales for the five months of 2010 were P150,000. Raw material purchases were P50,000. Freight on purchases was
P5,000. Direct labor for five months was P40,000. For the past five years manufacturing overhead was 50% of direct
labor cost.
1) How much is the gross profit rate?
2) What was the value of the work in process inventory as of May 31, 2015?
Problem 3: The Best co. ask you in determining the amount of loss in connection with a fire which destroyed part of
the company’s inventory on July 15, 2015. Some of the accounting records available show:
 The last physical count was taken on January 31, and inventory at that time, at cost was P2,342,152
 The annual premium of P16,000 on the insurance carried was due and paid on May 1. The face of the policy is
P1,500,000.
 Accounts payable were P1,223,416 on January 31, and 1,410,522 at the time the fire occurred.
 Payments to vendors from January 31 to the date of fire amounted to P7,131, 987.
 All sales are on account, and accounts receivable were P1,500,197 at January 31 and P1,190,580 at the date of
fire.
 Collection on receivable from January 31, to date of fire amounted to P9,735,592.
 Most items sell at approximately 25% in excess of cost. An inventory of merchandise not destroyed by the fire
amounted to P1,609,862 at cost on July 15, of which P100,000 are obsolete and can be sold only at P75,000.
Compute the amount of :
1. Purchases from January 31 to date of fire.
2. Sales from January 31 to date of fire.
3. Fire loss
RETAIL INVENTORY
Problem 1: Horseshoe Corporation uses FIFO retail method of inventory valuation. Following are the information available for year
ended December 31, 2015:
 Beginning inventory of P240,000 at cost and P600,000 at retail.
 Purchases for the year was P1,265,000 at cost and P2,200,000 at retail, while freight-in, purchase discount and purchase return
were P50,000, P45,000 and P70,000 respectively. The purchase returns retail price is P120,000.
 Markdowns of P550,000 were charged to retail price of which P150,000 were cancelled.
 Markups of P225,000 were added and prior to year-end P25,000 were cancelled.
 Sales revenue was P1,905,000, sales return was P35,000, and sales discount granted was P70,000.
Prepare a schedule showing the computation of ending inventory at cost and compute for the cost of sale.
Problem 2: Wishful’s inventory shows the following information at December 31, 2015:
 Inventory January 1, at cost of P560,000 and retail of P1,400,000.
 Purchases costing P4,960,000, on which freight charges incurred was P150,000, are valued at retail of P10,320,000.
 Markup of P1,000,000 was added to the retail price of which P120,000 were cancelled. In addition, markdown of P500,000 was
also recognized in the current year of which P100,000 were also cancelled.
 Sales for the year was P10,000,000, which is inclusive of sales to employee of P160,000 net of 20% discount.
 During the year, goods costing P108,000, were transferred to another department. This goods are normally valued at selling price
of P180,000.
 Shrinkage is estimated at 1.5% of sales, at the end of the year the total shrinkage accounted and recorded was P175,000.
 Sales returns and allowances was P165,000, of which P15,000 represent allowances. Sales discount was at P25,000, while
purchases return and purchase discount were P25,000 and P50,000 respectively. The retail price of the purchase return is
P50,000.
Compute for the cost of ending inventory and cost of sales under 1: Conservative method and 2: Average Method.

Inventory Activities II

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Problem 1: Ling Co. uses average retail inventory method.

The following information is available for the

1) The cost ratio for the current year is ___.

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