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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Gross Profit Method: Estimation of Flood Loss On June 30, 2019, 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 flood following valuations:

Chapter 8, Problem 5P, Gross Profit Method: Estimation of Flood Loss On June 30, 2019, a flash flood damaged the warehouse , example  1

The inventory on January 1, 2019, consisted of the following:

Chapter 8, Problem 5P, Gross Profit Method: Estimation of Flood Loss On June 30, 2019, a flash flood damaged the warehouse , example  2

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 2019 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.

Required:

Compute the value of the work-in-process inventory lost at June 30, 2019. Show supporting computations in good form.

To determine

Calculate the cost of the work-in process inventory lost at June 30, 2019.

Explanation

Gross Profit Method: Under this method, the beginning inventory is added to the net purchases during the period which results in the goods available for sale. Then, the estimated cost of goods sold is deducted from the goods available for sale to estimate the ending inventory.

Work-in-process: It is the total of all expenses put into the production process to manufacture products that are partially completed. Generally, work in process refers to labor, raw materials and overhead expenses incurred for products that are at several stages of the production procedure.

Calculate the cost of the work-in process inventory lost at June 30, 2019.

Step 1: Calculate the cost of goods manufactured and completed.

P Corporation
Computation of Cost of Goods Manufactured and Completed
At June 30, 2019
DetailsAmount ($)Amount ($)
Sales340,000 
Less: Gross profit(85,000) 
Cost of goods sold255,000 
Add: Finished goods on June 30119,000 
Cost of goods available for sale 374,000
Less: Finished goods on January 1 (140,000)
Cost of goods manufactured and completed 234,000

Table (1)

Step 2: Calculate the value of the work-in-process inventory lost at June 30, 2019...

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