On April 12, after the close of business, Singh & Sons had a devastating fire that destroyed the company’s work-in-process and finished-goods inventories. Fortunately, all raw materials escaped damage because materials owned by the firm were stored in another warehouse. The following information is available: Sales revenue through April 12........................................................................ $330,000 Income before taxes through April 12 ............................................................. 68,000 Direct labor through April 12........................................................................... 120,000 Cost of goods available for sale, April 12........................................................ 275,000 Work-in-process inventory, January 1 ............................................................. 21,000 Finished-goods inventory, January 1 ............................................................... 37,000 Gross margin .................................................................................................... 30% of sales The firm’s accountants determined that the cost of direct materials used normally averages 25 percent of prime costs (i.e., direct material + direct labor). In addition, manufacturing overhead is 50 percent of the firm’s total production costs. Required: Singh & Sons is in the process of negotiating a settlement with its insurance company. Prepare an estimate of the cost of work-in-process and finished-goods inventories that were destroyed by the fire.
On April 12, after the close of business, Singh & Sons had a devastating fire that destroyed
the company’s work-in-process and finished-goods inventories. Fortunately, all raw
materials escaped damage because materials owned by the firm were stored in another
warehouse. The following information is available:
Sales revenue through April 12........................................................................ $330,000
Income before taxes through April 12 ............................................................. 68,000
Direct labor through April 12........................................................................... 120,000
Cost of goods available for sale, April 12........................................................ 275,000
Work-in-process inventory, January 1 ............................................................. 21,000
Finished-goods inventory, January 1 ............................................................... 37,000
Gross margin .................................................................................................... 30% of sales
The firm’s accountants determined that the cost of direct materials used normally averages
25 percent of prime costs (i.e., direct material + direct labor). In addition, manufacturing
overhead is 50 percent of the firm’s total production costs.
Required:
Singh & Sons is in the process of negotiating a settlement with its insurance company.
Prepare an estimate of the cost of work-in-process and finished-goods inventories that
were destroyed by the fire.
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