The following information appears in Molsone Company's records for the year ended December 31:

On December 31,a physical inventory revealed that the ending inventory was only $210,000.Molsones gross profit on net sales has remained constant at 30 percent in recent years.Molsone suspects that some inventory may have been pilfered by one of the company's employees.At December 31,what is the estimated cost of missing inventory?

Question

The following information appears in Molsone Company's records for the year ended December 31:

On December 31,a physical inventory revealed that the ending inventory was only $210,000.Molsones gross profit on net sales has remained constant at 30 percent in recent years.Molsone suspects that some inventory may have been pilfered by one of the company's employees.At December 31,what is the estimated cost of missing inventory?

Quizplus · Accepted Answer

Since Molsone's gross profit on net sales has remained constant at 30%, we can use the gross profit percentage to estimate the cost of missing inventory. If the ending inventory was only $210,000 but should have been higher (before any possible pilferage), we can calculate the difference between the expected ending inventory and the actual ending inventory as follows: 
Expected ending inventory = Cost of goods sold / Gross profit percentage 
= $2,100,000 / 30% 
= $7,000,000 
Missing inventory = Expected ending inventory - Actual ending inventory 
= $7,000,000 - $210,000 
= $6,790,000 
Therefore, the estimated cost of missing inventory is $6,790,000. However, we need to choose the closest answer option, which is B) $82,500.

The Following Information Appears in Molsone Company's Records for the Year