Question

Mapleton Corporation builds sailboats. On January 1, 2019, the company had the following account balances: $48,000 for both cash and common stock. Boat 25 was started on February 10 and finished on May 31. To build the boat, Mapleton had incurred cash costs of $8,640 for labor and $7,500 for materials. During the same period, Mapleton paid $11,160 cash for actual manufacturing overhead costs. The company expects to incur $210,600 of indirect overhead cost during 2019. The overhead is allocated to jobs based on direct labor cost. The expected total labor cost for the year is $162,000.

Mapleton uses a just-in-time inventory management system. Consequently, it does not have raw materials inventory. Raw materials purchases are recorded directly in the Work in Process Inventory account.

Required

1. If Mapleton desires to earn a profit equal to 20 percent of cost, for what price should it sell the boat?
2. If the boat is not sold by year-end, what amount would appear in the Work in Process Inventory and Finished Goods Inventory on the balance sheet for Boat 25?
3. Is the amount of inventory you calculated in Requirement c the actual or the estimated cost of the boat?

Answer 1

Working as follows:

Cash	+	WIP	+	Finished Goods	+	Mfg. goods	=	Common Stock	+	Retained Earnings		Revenue	–	Expenses	=	Net Income
$48,000								$48,000
($8,640)		$8,640
($7,500)		$7,500
($11,160)						$11,160
		$11,232				($11,232)
		($27,372)		$27,372
$20,700		$0		$27,372		($72)		$48,000		$0		$0		$0		$0

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Calculate sale price of the boat as follows: Sale Price=Total Cost + Profit =$27,372 +20% =$32.846.40 If boat not sold by year than WIP account is zero dollar and the finished goods inventory as on balance sheet is $27.372 d) $27,372 is the estimated cost of boat as opplied overhead is an estimated amount of the total overhead.