Rapid Response Manufacturing Company suffered major losses in a fire on June 18, 2010. In addition to

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Rapid Response Manufacturing Company suffered major losses in a fire on June 18, 2010. In addition to destroying several buildings, the blaze destroyed the company’s Work in Process Inventory for an entire product line. Fortunately, the company was insured; however, it needs to substantiate the amount of the claim. To this end, the company has gathered the following information that pertains to production and sales of the affected product line:
1. The company’s sales for the first 18 days of June amounted to $460,000. Normally, this product line generates a gross profit equal to 40 percent of sales.
2. Finished Goods Inventory was $58,000 on June 1 and $85,000 on June 18.
3. On June 1, Work in Process Inventory was $96,000.
4. During the first 18 days of June, the company incurred the following costs:
Direct material used............................. $152,000
Direct labor ........... 88,000
Manufacturing overhead ...... 84,000
a. Determine the value of Work in Process Inventory that was destroyed by the fire, assuming Rapid Response Manufacturing Company uses an actual cost system.
b. What other information might the insurance company require? How would management determine or estimate this information?

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Cost Accounting Foundations and Evolutions

ISBN: 978-1111626822

8th Edition

Authors: Michael R. Kinney, Cecily A. Raiborn

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