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Windsor, Inc. uses a perpetual inventory system and reported $533,000 of inventory at the beginning of the month based on a physical count of inventory. During the month, the company bought $38,000 of inventory and sold inventory that had cost $32,750. At the end of the month, the physical count of inventory shows $535,000 on hand. How much shrinkage occurred during the month?

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Answer:

Shrinkage = $3,250

Explanation:

The shrinkage would be calculated as expected value of inventory at the end of the period minus the actual value of inventory at the end of the same period.

Expected inventory at the end of the period

= Opening inventory + purchases for the period - cost of goods sold

= 533,000 + 38,000 - 32,750

=$538,250

Shrinkage =  expected amount of inventory - actual  value

= $538,250 - $535,000

= $3,250

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