Flynn Company uses a perpetual inventory system and reported $500,000 of inventory at the beginning of the month based on a physical count of inventory.During the month,the company bought $45,000 of inventory and sold inventory that had cost $30,000.At the end of the month,the physical count of inventory shows $510,000 on hand.How much shrinkage occurred during the month?
A) $35,000
B) $25,000
C) $5,000
D) $10,000

Question

Quizplus · Accepted Answer

To calculate the shrinkage, we need to find the difference between the actual physical count of inventory at the end of the month and the expected inventory balance based on purchases and sales.

Expected inventory balance based on purchases and sales:
Beginning inventory: $500,000
Purchases: $45,000
Total available inventory: $545,000
Cost of goods sold: $30,000
Expected ending inventory: $515,000

Actual ending inventory: $510,000

Shrinkage = Expected ending inventory - Actual ending inventory
Shrinkage = $515,000 - $510,000
Shrinkage = $5,000

Therefore, the answer is C) $5,000.

Flynn Company Uses a Perpetual Inventory System and Reported $500,000