Allegra Ltd

question 28

Essay

Allegra Ltd. has just completed a physical inventory count at year end, July 31, 2020. Only the items on the shelves, in storage, and in the receiving area were counted. The inventory amounted to $77,000. Allegra uses a perpetual inventory system. During the year-end audit, the independent CPA discovered the following additional information:
1. There were goods in transit on July 31, 2020, from a supplier with terms FOB destination, costing $8,500. These items were excluded from the physical inventory count.
2. On July 27, 2020, a regular customer purchased goods for cash amounting to $1,000 and left them for pickup on August 4, 2020. Allegra had paid $1,200 for the goods and included them in the physical inventory count.
3. Allegra Ltd, on the date of the inventory count, received notice from a supplier that goods ordered earlier at a cost of $10,000, were shipped on July 28, 2020; the terms were FOB shipping point. The goods had not yet been received. These items were excluded from the physical inventory.
4. On July 31, 2020, there were goods in transit to customers, with terms FOB shipping point, amounting to $800 (expected delivery on August 8, 2020). The items were excluded from the physical inventory count.
5. On July 31, 2020, Allegra shipped $2,500 worth of goods to a customer, FOB destination. This shipment arrived on August 5, 2020. These items were not included in the physical inventory count.
6. Allegra, as the consignee, had goods on consignment that cost $5,000. These items were included in the physical inventory count.
Instructions
Analyze the above information and calculate a corrected amount for the ending inventory. Explain the rationale for your treatment of each item.

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Definitions:

Cost-Plus Pricing

A pricing strategy where the selling price is determined by adding a specific markup to a product's production cost.

Total Unit Cost

The complete expense incurred to produce, store, and sell one unit of a product, including both fixed and variable costs.

Standard Markup Pricing

A pricing strategy where a fixed percentage is added to the cost of a product to determine its selling price.