Question

On June 30, 20X1, a tornado damaged Jensen Corporation’s warehouse and factory, completely destroying the work-in-process inventory. Neither the raw materials nor finished goods inventories were damaged. A physical inventory taken after the tornado revealed the following valuations:
Raw materials $87,000
Work-in-process 0
Finished goods 151,000
$238,000
The inventory of January 1, 20X1, consisted of the following:
Raw materials $41,000
Work-in-process 128,000
Finished goods 173,000
$342,000
A review of the books and records disclosed that the gross profit margin historically approximated 28% of sales. The sales total for the first six months of 20X1 was $405,000. Raw material purchases totaled $150,000. Direct labor costs for this period were $112,000, and manufacturing overhead has historically been applied at 50% of direct labor.
Required:
Compute the value of the work-in-process inventory lost at June 30, 20X1.

Answer 1

Answer:

$130,400

Explanation:

Raw material transferred to WIP = Beginning balance + Purchase - Closing balance = $41,000 + $150,000 - $87,000 = $104,000

Cost of Goods manufactured = Closing balance + Cost of goods sold - Beginning balance

Cost of Goods manufactured = $151,000 + $405,000*70% - $173,000 = $151,000 + $291,600 - $173,000

Cost of Goods manufactured = $269,000

Ending Work in Process = Beginning balance + Direct material + Direct labor - Manufacturing overheads - Cost of goods manufactured

Ending Work in Process = $128,000 + $104,000 + $112,000 + $112,000*50% - $269,600

Ending Work in Process = $128,000 + $104,000 + $112,000 + $56,000 - $269,600

Ending balance of Work in Process = $130,400