Answer:
The cost of the work in process inventory lost in the disaster is $155,000
Explanation:
The insurable value of work in process inventory consists of:
1. Direct materials which is equal to the difference between materials inventory as at April 30th and materials inventory as at May 31st.
This difference is the amount or cost of materials that were directly used in the manufacturing process.
$98,000 - $86,000 = $12,000
2. Direct Labour. This is the combination of Accounts Payable and Other Payroll Liabilities. That is $43,200 + $19,400 = $62,600
3. Applied overhead cost is $359,200
The total of these 3 figures gives the insurable value of WIPI
359,200 + 62,600 + 12,000 = $433,800
The question though says:
Determine the cost of the WIPI lost in the tornado.
WIPI does not include:
- Finished goods
- Unused raw materials
The ending (month end in this case) WIPI is the cost of partly completed or uncompleted work as at the end of the accounting period.
WIPI = Beginning WIPI amount + All manufacturing costs - Cost of finished goods
WIPI = 12,000 + 172,400 - 64,000 - 697,200 +43,200 + 0 + 19,400 + 359,200
WIPI = -$155,000
