Tang Drapery, Inc. specializes in making custom draperies for both commercial and residential customers. It began business on August 1, 2018, by acquiring $60,000 cash through issuing common stock. In August 2018, Tang accepted drapery orders, Jobs 801 and 802, for two new commercial buildings. The company paid cash for the following costs related to the orders:

Job 801

Raw materials.................................................................. $12,500

Direct labor (512 hours at $25 per hour)......................................12,800

Job 802

Raw materials.....................................................................10,000

Direct labor (340 hours at $25 per hour).......................................8,500

During the same month, Tang paid $18,000 for various indirect costs such as utilities, equipment leases, and factory-related insurance. The company estimated its annual manufacturing overhead cost would be $300,000 and expected to use 20,000 direct labor hours in its first year of operation. It planned to allocate overhead based on direct labor hours. On August 31, 2018, Tang completed Job 801 and collected the contract price of $43,750. Job 802 was still in process.

Tang uses a just-in-time inventory management system. Consequently, it has no raw materials inventory. Raw materials purchases are recorded directly in the Work in Process Inventory account.

Required

a. Use a horizontal financial statements model as follows to record Tang's accounting events for August 2018. The first event is shown as an example.

b. What was Tang's ending inventory on August 31, 2018? Is this amount the actual or the estimated inventory cost?
c. When is it appropriate to use estimated inventory cost on a year-end balance sheet?

Transcribed Image Text:

Assets Work In FInlshed Manuf. Com Ret. Cash + Process + Goods + Overhead = Stock + Ear. Rev. - Exp. = Net Inc. NA NA 60,000 + NA + NA + NA = 60,000 + NA NA