Fenwick Corporation\'s manufacturing and finished goods warehouse facilities bur

Question

Fenwick Corporation's manufacturing and finished goods warehouse facilities burned to the ground on January 31. The loss was fully covered by insurance. The insurance company wanted to know the cost of the inventories destroyed in the fire. The company's accountants gathered the following information:

Assume that actual manufacturing overhead was exactly equal to the amount applied to production at the time of the fire.

Compute the cost of materials inventory (assume materials inventory is comprised entirely of direct materials) lost in the fire. (Omit the "$" sign in your response.)

  Direct materials purchased in January $ 160,000   Work in Process Inventory, January 1 34,000   Materials Inventory, January 1 16,000   Finished Goods Inventory, January 1 30,000   Direct labor costs incurred in January 190,000   Prime costs charged to jobs in January 294,000   Cost of finished goods available for sale in January 450,000   Sales revenue earned in January 500,000   Gross profit as a percentage of January sales 25 %   Manufacturing overhead applied to jobs in January as a      percentage of total conversion costs 60 %

Explanation / Answer

Part A:

Opening Materials Inventory = 16000

+ Material Purchased = 160000

- Material Used = 104000

Materials Lost in Fire = 72000

Part B:

Opening WIP Inventory = 34000

+Material Used = 104000

+Labor Cost Incurred = 190000

+Manufacturing Overhead Applied = 285000

-Costs Transferred to Finished Goods = 420000

WIP Inventory Lost in Fire = 193000

Part C:

Opening Finished Goods Inventory = 30000

+Cost of completed goods manufactured = 420000

-Cost of goods sold = 375000

Finished Goods Inventory Lost in Fire = 75000

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