BYP1-1 Mismatch Manufacturing Company specializes in producing fashion outfits.
BYP1-1 Mismatch Manufacturing Company specializes in producing fashion outfits.
On July 31, 2011, a tornado touched down at its factory and general office. The
Inventories in the warehouse and the factory were completely destroyed as was the
General office nearby. Next morning, through a careful search of the disaster site,
However, Ross Clarkson, the company’s controller, and Catherine Harper, the cost
Accountant, were able to recover a small part of manufacturing cost data for the current
Month.
“What a horrible experience,” sighed Ross. “And the worst part is that we may not
have enough records to use in filing an insurance claim.”
“It was terrible,” replied Catherine. “However, I managed to recover some of the
manufacturing cost data that I was working on yesterday afternoon. The data indicate
that our direct labor cost in July totaled $240,000 and that we had purchased $345,000
of raw materials. Also, I recall that the amount of raw materials used for July was
$350,000. But I’m not sure this information will help. The rest of our records are blown
away.”
“Well, not exactly,” said Ross. “I was working on the year-to-date income statement
when the tornado warning was announced. My recollection is that our sales in July were
$1,260,000 and our gross profit ratio has been 40% of sales. Also, I can remember that our
cost of goods available for sale was $770,000 for July.”
“Maybe we can work something out from this information!” exclaimed Catherine.
“My experience tells me that our manufacturing overhead is usually 60% of direct
labor.”
“Hey, look what I just found,” cried Catherine. “It’s a copy of this June’s balance sheet,
and it shows that our inventories as of June 30 are Finished goods $38,000, Work in
process $25,000, and Raw materials $19,000.”
“Super,” yelled Ross. “Let’s go work something out.”
In order to file an insurance claim, Mismatch Company must determine the amount
Of its inventories as of July 31, 2011, the date of the tornado touchdown.
Instructions
With the class divided into groups, determine the amount of cost in the Raw Materials,
Work in Process, and Finished Goods inventory accounts as of the date of the tornado
Touchdown.
