On June 30, 2016, a flash flood damaged the warehouse and factory of Padway Corporation, completely destroying the work-in-process inventory. There was no damage to either the raw materials or finished goods inventories. A physical inventory taken after the flood revealed the following valuations:Raw materials$ 62,000Work in process0Finished goods119,000The inventory on January 1, 2016 consisted of the following:Raw materials$ 30,000Work in process100,000Finished goods140,000 $270,000A review of the books and records disclosed that the gross profit margin historically approximated 25% of sales. The sales for the first six months of 2016 were $340,000. Raw material purchases were $115,000. Direct labor costs for this period were $80,000, and manufacturing overhead was historically applied at 50% of direct labor.

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Asked Sep 27, 2019
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On June 30, 2016, a flash flood damaged the warehouse and factory of Padway Corporation, completely destroying the work-in-process inventory. There was no damage to either the raw materials or finished goods inventories. A physical inventory taken after the flood revealed the following valuations:

Raw materials $ 62,000
Work in process 0
Finished goods 119,000

The inventory on January 1, 2016 consisted of the following:

Raw materials $ 30,000
Work in process 100,000
Finished goods 140,000
  $270,000

A review of the books and records disclosed that the gross profit margin historically approximated 25% of sales. The sales for the first six months of 2016 were $340,000. Raw material purchases were $115,000. Direct labor costs for this period were $80,000, and manufacturing overhead was historically applied at 50% of direct labor.

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Expert Answer

Step 1

Gross profit method of inventory helps in calculating the ending inventory. Following steps helps us to figure out the inventory. Adding the beginning inventory with the purchases would give us  cost of goods available for selling. To arrive at cost we can multiply t...

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Cost of Goods completed on June 30th Sales 340000 Less Gross profit 85000 COGS 255000 Add: finished goods 119000 Cost of goods available for Sale Less: finished goods on Jan1 Cost of goods Completed 374000 140000 234000

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