A55 19 W Problem 1

A55 19 W Problem 1December 31, 2012, Acme Company’s facilities were damaged by a fire, destroying the company’s

direct material, w.i.p., and f. goods. Information that was ‘salvaged’ revealed the following:

1. Beginning inventory, January 1, 2012: DM, $64,000; WIP, $136,000; FG, $60,000.

2. Key ratios for the year: Gross profit, 20% of sales; Prime costs, 70% of manufacturing costs;
Factory overhead, 40% of conversion costs; Ending WIP is always 10% of the
manufacturing costs.

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

4. Actual operating data for the year:

Sales, $1,800,000; Direct material purchases, $640,000; Direct labour incurred, $720,000
(a) Construct a cost of goods manufactured schedule based on the above information.
(b) Calculate the total cost of inventory lost, and identify each category where possible as at December
31, 2012. (i.e. Direct material, WIP, and finished goods inventory.)
Problem 2
The following income statement for 2015 was prepared by an inexperienced accountant:
Sales (net) $675,000
Less: Operating expenses
Raw materials purchased $200,000
Direct labour costs $160,000
Advertising expense $ 75,000
Selling and admin salaries $ 70,000
Rent on factory facilities 35 60,000
Depreciation – Sales equipment $ 50,000
Depreciation – Factory equipment $ 35,000
Indirect labour cost $ 20,000
Utilities expense $ 10,000
Insurance expense LiQQQ $5,000
Net loss 5 (10,000)
The company president is concerned about the statement’s accuracy. Additional information is as
Inventory balances Beam ‘ g of year End of year
RM $19,500 $30,000
WIP $25,000 $21,000
FG $40,000 $64,000
Only 60% of the utilities expense and 70% of the insurance expense apply to factory operations, The
rest apply to selling and administration operations.
Required: Correct the income statement, and prepare a cost of goods manufactured statement for the
year. v

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