Question

On January 31, 2020, the manufacturing facility of a medium-sized company was severely damaged by an accidental fire. As a result, the company's 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:1.Beginning inventories, January 1, 2020:

Direct materials	$32,000
Finished goods	30,000
Work in process	68,000

2.Key ratios for the month of January 2020:

Gross profit = 20% of sales

Prime costs = 70% of manufacturing costs

Factory overhead = 40% of conversion costs

Ending work in process is always 10% of the monthly manufacturing costs.

3.All costs are incurred evenly in the manufacturing process.

4.Actual operations data for the month of January 2020:

Sales	$900,000
Direct labour incurred	360,000
Direct materials purchases	320,000

Instructions

a.  From the above data, reconstruct a cost of goods manufactured schedule.

CGM $788,000

b.  Calculate the total cost of inventory lost, and identify each category where possible (direct materials, work in process, and finished goods), at January 31, 2020.

Total $330,000

Answer 1

Let the factory overhead be "X"

Factory overhead = 40% conversion cost

   x =.40[360000 direct labor +x overhead]

   x = 144000+.40 x

x -.40x =144000

   x (factory overhead) = 144000/.60 = $ 240000

**conversion cost =direct labor + overhead

Total manufacturing cost =direct material +direct labor +overhead

   prime cost =direct material +direct labor

    [DM+36.0000] = .70 [DM+360000+240000]

     DM +360000= .70DM +420000

     DM -.70DM = 420000-360000

     .30DM = 60000

    Direct material = 60000/.30 = $ 200000

a)

Direct material used		200000
Direct labor		360000
Factory overhead		240000
Total manufacturing cost		800000
Add:beginning WIP		68000
LESS:ENDING WIP   [800000*10]		(80000)
Cost of goods manufactured		788000

b)

Raw material end =Beginning RM+purchase -used

         = 32000+ 320000-200000

          = 152000

Ending WIP : 80000

Finished goods at end = beginning FG+cost of goods manufactured- cost of goods sold

             = 30000+ 788000-720000

              = 98000

Total lost :152000+80000+98000= 330000

**cost of goods sold : 900000(1-.20)=720000