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    Class Example: Inventory Loss

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    moss roffatt
    On April 30, a fire destroyed a company's inventory. The company's direct materials inventory was $99,000, work in process inventory was $95,000, and finished goods inventory was $34,000, for a total inventory loss of $228,000. The company's total manufacturing costs for April were $950,000.

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    Class Example: Inventory Loss

    Uploaded by

    moss roffatt
    56 views12 pages
    On April 30, a fire destroyed a company's inventory. The company's direct materials inventory was $99,000, work in process inventory was $95,000, and finished goods inventory was $34,000, for a total inventory loss of $228,000. The company's total manufacturing costs for April were $950,000.

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    cost accounting notes mcmaster

    Original Title

    A600-4

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    On April 30, a fire destroyed a company's inventory. The company's direct materials inventory was $99,000, work in process inventory was $95,000, and finished goods inventory was $34,000, for a total inventory loss of $228,000. The company's total manufacturing costs for April were $950,000.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    56 views12 pages

    Class Example: Inventory Loss

    Uploaded by

    moss roffatt
    On April 30, a fire destroyed a company's inventory. The company's direct materials inventory was $99,000, work in process inventory was $95,000, and finished goods inventory was $34,000, for a total inventory loss of $228,000. The company's total manufacturing costs for April were $950,000.

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    Class Example

    Inventory Loss

    On April 30, the manufacturing facility of a


    medium-sized company was severely
    damaged by an accidental fire. As a result,
    the companys direct materials, work in
    process and finished goods inventories were
    destroyed. The company did have access
    to certain incomplete accounting records
    which revealed the following:

    Direct Materials Used; Manufacturing Overhead;


    Manufacturing Costs Incurred;
    Inventory Loss; Cost of Goods Sold;
    Finished Goods Inventory ; Total Inventory Lost

    Operating Data:

    Inventories, March 31

    Direct materials, $45,000


    Work in process, $92,000
    Finished goods, $87,000

    Key operating statistics for the month of


    April:

    The average markup on the products is 40% of


    manufacturing costs.
    Direct materials used is 60% of prime costs.
    Factory overhead is 40% of conversion costs.

    Direct Materials Used; Manufacturing Overhead;


    Manufacturing Costs Incurred;
    Inventory Loss; Cost of Goods Sold;
    Finished Goods Inventory ; Total Inventory Lost

    Operating Data (cont.)

    Ending work in process inventory is 10% of the


    total manufacturing costs incurred in April.

    Actual operating data for the month of


    April:

    Net sales is $1,400,000.


    Total factory payroll is $400,000; 25% of which
    can be classified as indirect labour.
    Total amount of direct materials purchased is
    $504,000.

    Required:

    Calculate the total manufacturing costs


    incurred in the month of April.
    Calculate the value of inventory lost in the fire
    on April 30.

    Operating Data:
    Operating Data (cont.)

    Direct Materials Used


    Prime costs
    = DM + DL
    = 60% Prime costs + 75% ($400,000)
    Prime costs
    = $750,000
    Direct materials used
    = 60% ($750,000)
    = $450,000

    Operating Data:
    Operating Data (cont.)

    Manufacturing Overhead
    Conversion costs, CC
    = DL + OH
    = 75% ($400,000) + 40% CC
    Conversion costs
    = $500,000
    Overhead
    = 40% ($500,000)
    = $200,000

    Operating Data:
    Operating Data (cont.)

    Manufacturing Costs Incurred


    Total manufacturing costs incurred
    = DM + DL + OH
    = $450,000 + $300,000 + $200,000
    = $950,000

    Operating Data:
    Operating Data (cont.)

    Inventory Loss
    Direct materials inventory, April 30
    = $45,000 + $504,000 - $450,000
    = $99,000
    Work in process inventory, April 30
    = 10% ($950,000)
    = $95,000

    Operating Data:
    Operating Data (cont.)

    Cost of Goods Sold


    sales= costs + markup
    sales = costs + 40% cost
    cost = sales / 140%
    Cost of goods sold
    =$1,400,000 / 140%
    = $1,000,000

    Operating Data:
    Operating Data (cont.)

    Finished Goods Inventory


    Cost of goods manufactured
    = $92,000 + $950,000 - $95,000
    = $947,000
    Finished goods inventory, April 30
    = $87,000 + $947,000 - $1,000,000
    = $34,000

    Operating Data:
    Operating Data (cont.)

    Total Inventory Lost


    Total inventory lost
    = $99,000 + $95,000 + $34,000
    = $228,000

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