1. Assume Joker Company uses a periodic inventory system. Calculate cost of goods sold and ending inventory using (1) FIFO, (2) LIFO and (3) average cost. Round per unit cost to two decimal places.

2. Assume Joker Company uses a perpetual inventory system. Calculate cost of goods sold and ending inventory using (1) FIFO, (2) LIFO and (3) average cost. Round per unit cost to two decimal places.

COLORADO CORPORATION

On October 27, 2011, a freak snowstorm destroyed the work-in-process of the company, who promptly filed a claim with their insurance company for the lost work-in-process inventory, and raw materials inventory which were in the factory. Luckily, the finished goods are kept at a separate warehouse location, which was not damaged by the storm. As is normal, they put in a claim for lost profits as a result of the damage.

You have been sent to the scene on behalf of the insurance company to audit the claim being made by company. The company claims that the cost of work-in-process inventory destroyed by the storm was $50,000, and the cost of raw materials was $175,000.

From your conversations with factory personnel, you discover that the company was in process of manufacturing two custom jobs, Alpha and Gamma, both of which were started during 2011. Further discussion with the warehouse supervisor revealed that there was one job, Beta, complete and in the warehouse awaiting shipment at the time of the storm.

While the company’s onsite accounting records were destroyed, you were able to get the following information from off-site backup records, and through interviewing company personnel:

1. The company applies overhead at the rate of 85% of direct labor cost.
2. Cost of goods sold averages 75% of the company’s selling price.
3. Sales to date as of the date of the storm totaled $1,598,000.
4. The company pays its factory workers a rate of $12.90 per hour. A total of 25,760 direct labor hours were used during the year.
5. Raw materials purchased year to date totaled $843,276.
6. Total costs of job Beta amounted to $165,600.

Job cost records for Alpha and Gamma showed the following:

The December 31, 2010 financial statements showed the following inventory amounts:

Required:

1. Calculate the cost of goods sold for the year.
2. Calculate the cost of goods manufactured for the year.
3. Compute the amount of applied overhead for each job in the WIP inventory (round to the nearest dollar).
4. Evaluate the claim for damages submitted as follows:

1. Determine the cost of work in process destroyed by the snowstorm.
2. Determine the cost of raw materials destroyed by the snowstorm.

24-27 The field work for the June 30, 2019, audit of Tracy Brewing Company was finished August 19, 2019, and the completed financial statements, accompanied by the signed audit reports, were mailed September 6, 2019. In each of the highly material independent events (a. through h.), state the appropriate action (1 through 4) for the situation and justify your response. The alternative actions are as follows:

1. Adjust the June 30, 2019, financial statements.

2. Disclose the information in a footnote in the June 30, 2019, financial statements.

3. Request the client to recall the June 30, 2019, statements for revision.

4. No action required.

The events are as follows:

a. On December 14, 2019, the auditor discovered that a debtor of Tracy Brewing went bankrupt on July 15, 2019, due to declining financial health. The sale generating the receivable had taken place January 15, 2019.

b. On December 14, 2019, the auditor discovered that a debtor of Tracy Brewing went bankrupt on October 2, 2019. The sale had taken place April 15, 2019, but the amount appeared collectible at June 30, 2019, and August 19, 2019.

c. On August 15, 2019, the auditor discovered that a debtor of Tracy Brewing went bankrupt on August 1, 2019. The most recent sale had taken place April 2, 2018, and no cash receipts had been received since that date.

d. On July 20, 2019, Tracy Brewing settled a lawsuit out of court that had originated in 2016 and is currently listed as a contingent liability.

e. On September 14, 2019, Tracy Brewing lost a court case that had originated in 2018 for an amount equal to the lawsuit. The June 30, 2019, footnotes state that in the opinion of legal counsel, there will be a favorable settlement

. f. On July 20, 2019, a lawsuit was filed against Tracy Brewing for a patent infringement action that allegedly took place in early 2019. In the opinion of legal counsel, there is a danger of a significant loss to the client.

g. On May 31, 2019, the auditor discovered an uninsured lawsuit against Tracy Brewing that had originated on February 28, 2019.

h. On August 6, 2019, the auditor discovered that a debtor of Tracy Brewing went bankrupt on July 30, 2019. The cause of the bankruptcy was an unexpected loss of a major lawsuit on July 15, 2019, resulting from a product deficiency suit by a different customer.

Case 1 – Working Capital (30%)

Masonry Ltd estimates that it takes the company 27 days on average to pay off its suppliers. It also knows that it has dyas’ sales in inventory of 64 days days’ sales outstanding of 32 days.

a) If the cash conversion cycle of the industry, on average, is 75 days, does Masonry manage their working capital good? Explain your answer by comparing the cash conversion cycle of Masonry’s and compare it with the industry (10%)

b) Assume you are the CFO of Mansory, explain your strategy to improve Mansory’s cash conversion cycle! (10%)

c) Explain the implemented strategy to improve cash conversion cycle in your current company you work with! (10%)

27. When examining a master budget, where does a company find the planned expenditures for facilities and equipment?

A) operating expense budget

B) capital budget

C) operating budget

D) purchases budget

28. In a master budget, the schedule of cash disbursements for operating expenses is used to prepare the ________.

A) capital budget

B) purchases and cost of goods sold budget

C) sales budget

D) cash budget

31. When preparing a budgeted balance sheet, the balance for the inventory account is found on the ________.

A) sales budget

B) cash budget

C) operating expense budget

D) purchases and cost of goods sold budget

32. An example of a favorable variance is ________.

A) actual revenues are less than expected revenues

C) actual material prices are greater than expected material prices

D) expected labor costs are less than actual labor costs