Question

The Devon Motor Company produces automobiles. On April 1st the company had no beginning inventories and it purchased 8,000 batteries at a cost of $80 per battery. It withdrew 7,600 batteries from the storeroom during the month. Of these, 100 were used to replace batteries in cars being used by the company’s traveling sales staff. The remaining 7,500 batteries withdrawn from the storeroom were placed in cars being produced by the company. Of the cars in production during April, 90% were completed and transferred from work in process to finished goods. Of the cars completed during the month, 30% were unsold at April 30th.

Required:

1. Determine the cost of batteries that would appear in each of the following accounts on April 30th.

a. Raw Materials

b. Work in Process

c. Finished Goods

d. Cost of Goods Sold

e. Selling Expense

2. Specify whether each of the above accounts would appear on the balance sheet or on the income statement at the end of the month.

Answer 1

1. The computations for parts 1a through 1e are as follows:

 

a. The cost of batteries in Raw Materials:

Beginning raw materials inventory............. 0

Plus: Battery purchases ............................ 8,000

Batteries available.................................... 8,000

Minus: Batteries withdrawn....................... 7,600

Ending raw materials inventory (a)............ 400

Cost per battery (b) ................................. $80

Raw materials on April 30th (a) × (b)......... $32,000

 

b. The cost of batteries in Work in Process:

Beginning work in process inventory ......... 0

Plus: Batteries withdrawn for production ... 7,500

Batteries available.................................... 7,500

Minus: Batteries transferred to finished goods (7,500 × 90%) ............................ 6,750

Ending work in process inventory (a)......... 750

Cost per battery (b) ................................. $80

Work in process on April 30th (a) × (b)...... $60,000

 

c. The cost of batteries in Finished Goods:

Beginning finished goods inventory ........... 0 Plus:

Batteries transferred in from work in process (see requirement b) .................. 6,750

Batteries available.................................... 6,750

Minus: Batteries transferred out to cost of goods sold (6,750 × (100% ‒ 30%))...... 4,725

Ending finished goods inventory (a) .......... 2,025

Cost per battery (b) ................................. $80

Finished goods on April 30th (a) × (b)........ $162,000 

 

d. The cost of batteries in Cost of Goods Sold:

Number of batteries (see requirement c) (a)........................................................ 4,725

Cost per battery (b) ................................. $80

Cost of goods sold for April (a) × (b)......... $378,000

 

e. The cost of batteries included in selling expense:

Number of batteries (a)............................ 100

Cost per battery (b) ................................. $80

Selling expense for April (a) × (b)............. $8,000

 

2. Raw Materials, Work in Process, and Finished Goods would appear on the balance sheet. Cost of Goods Sold and Selling Expense would appear on the income statement.

1. The computations for parts 1a through 1e are as follows:

 

a. The cost of batteries in Raw Materials:

Beginning raw materials inventory............. 0

Plus: Battery purchases ............................ 8,000

Batteries available.................................... 8,000

Minus: Batteries withdrawn....................... 7,600

Ending raw materials inventory (a)............ 400

Cost per battery (b) ................................. $80

Raw materials on April 30th (a) × (b)......... $32,000

 

b. The cost of batteries in Work in Process:

Beginning work in process inventory ......... 0

Plus: Batteries withdrawn for production ... 7,500

Batteries available.................................... 7,500

Minus: Batteries transferred to finished goods (7,500 × 90%) ............................ 6,750

Ending work in process inventory (a)......... 750

Cost per battery (b) ................................. $80

Work in process on April 30th (a) × (b)...... $60,000

 

c. The cost of batteries in Finished Goods:

Beginning finished goods inventory ........... 0 Plus:

Batteries transferred in from work in process (see requirement b) .................. 6,750

Batteries available.................................... 6,750

Minus: Batteries transferred out to cost of goods sold (6,750 × (100% ‒ 30%))...... 4,725

Ending finished goods inventory (a) .......... 2,025

Cost per battery (b) ................................. $80

Finished goods on April 30th (a) × (b)........ $162,000 

 

d. The cost of batteries in Cost of Goods Sold:

Number of batteries (see requirement c) (a)........................................................ 4,725

Cost per battery (b) ................................. $80

Cost of goods sold for April (a) × (b)......... $378,000

 

e. The cost of batteries included in selling expense:

Number of batteries (a)............................ 100

Cost per battery (b) ................................. $80

Selling expense for April (a) × (b)............. $8,000

 

2. Raw Materials, Work in Process, and Finished Goods would appear on the balance sheet. Cost of Goods Sold and Selling Expense would appear on the income statement.