Question

Hector P. Wastrel, a careless employee, left some combustible materials near an open flame in Salter Company’s plant. The resulting explosion and fire destroyed the entire plant and administrative offices. Justin Quick, the company’s controller, and Constance True heart, the operations manager, were able to save only a few bits of information as they escaped from the roaring blaze. What a disaster, cried Justin. And the worst part is that we have no records to use in filing an insurance claim.
I know, replied Constance, I was in the plant when the explosion occurred and I managed to grab only this brief summary sheet that contains information on one or two or our costs. It says that our direct labor cost this year has totaled $180,000 and that we have purchased $290,000 in raw materials. But I’m afraid that doesn’t help much; the rest of our records are just ashes. Well, not completely, said Justin. I was working on the year-to-date income statement when the explosion knocked me out of my chair. I instinctively held onto the page I was working on, and from what I can make out, our sales to date this year have totaled $1,200,000 and our gross margin rate has been 40% of sales. Also, I can see that our goods available for sale to customers has totaled $810,000 at cost. Maybe we’re not so bad off after all, exclaimed Constance. My sheet says that prime cost has totaled $410,000 so far this year and that manufacturing overhead is 70% of conversion cost. Now if we just had some information on our beginning inventories. Hey look at this, cried Justin. It’s a copy of last year’s annual report, and it shows what our inventories were when this year started. Let’s see, raw materials were $18,000, work in process was $65,000, and finished goods were $45,000.
Super, yelled Constance, let’s go to work. To file an insurance claim, the company must determine the amount of cost in its inventories as of the date of the fire. You may assume that all materials used in production during the year were direct materials.
Required: Determine the amount of cost in the Raw Materials, Work in Process, and Finished Goods inventory accounts as of the date of the fire.


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  • CreatedMarch 15, 2011
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