Question

On May 10, after the close of business, Fresno Furniture Company had a devastating fire that destroyed the company’s work-in-process and finished-goods inventories. Fortunately, all raw materials escaped damage because materials owned by the firm were stored in another warehouse. The following information is available:
Sales revenue through May 10................................................. $495,000
Income before taxes through May 10......................................... 102,000
Direct labor through May 10...................................................... 180,000
Cost of goods available for sale, May 10.................................. 412,500
Work-in-process inventory, January 1........................................ 31,500
Finished-goods inventory, January 1.......................................... 55,500
Fresno Furniture Company’s accountants determined that the cost of direct materials used normally averages 25 percent of prime costs (i.e., direct material + direct labor). In addition, manufacturing overhead is 50 percent of the firm’s total production costs. The gross margin is 30 percent of sales.

Required:
The company is in the process of negotiating a settlement with its insurance company. Prepare an estimate of the cost of work-in-process and finished-goods inventories that were destroyed by the fire.



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  • CreatedApril 22, 2014
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