This is the assignment that I have. I have the answer for the first part but I do not understand how to get the second part. I have reread the material trying to understand what I am supposed to do, but I still cannot figure it out. Can someone help me understand how to get the answer. I am not asking for the answer, I want to understand how to get the answer. Here is the problem and my answer for the first part:

The records of Alaina Co. provide the following information for the year ended December 31:

At Cost At Retail
January 1 beginning inventory.. . $ 81,670 $114,610
Cost of goods purchased.. . 492,250 751,730
Sales.. . 786,120
Sales returns.. . 4,480

Required

1. Use the retail inventory method to estimate the company’s year-end inventory.
2. A year-end physical inventory at retail prices yields a total inventory of $78,550. Prepare a calculation showing the company’s loss from shrinkage at cost and at retail.

My answer for part 1 is: $55,902

I got this answer doing the following:

$866,340-781,640=84700
$573,920/866,340=66%
$84,700 x .66=$55,902

Your approach to the first part is correct except the cost to retail ratio is 66.25%. Never mind the fractions.

Shrinkage at retail is 84700 - 55902 = 28798
Shrinkage at cost is 28798 x 66% = 19007

Quote:

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Originally Posted by rehmanvohra

Your approach to the first part is correct except the cost to retail ratio is 66.25%. Never mind the fractions.

Shrinkage at retail is 84700 - 55902 = 28798
Shrinkage at cost is 28798 x 66% = 19007

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Isn't the $78,550 part of the equation for the second part? The text gives the answer for the inventory shortage at cost as $4,059. But I am clueless as to how to arrive at that answer and I want to know how to do it.

I think that I may have figured it out. Tell me if I am right.

$84,700 - 78,550 = $6,150

$6,150 x .66 = $4,059

Is that right?

Quote:

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Originally Posted by TinkRose

I think that I may have figured it out. Tell me if I am right.

$84,700 - 78,550 = $6,150

$6,150 x .66 = $4,059

Is that right?

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I think you are right. I mistook the inventory of 78,550 at cost instead of retail. Sorry for that

Where does the $84,700 come from?

Quote:

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Originally Posted by kathy8000

where does the $84,700 come from??

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Please read the first pot of Tinkrose. It is given there.