Question

Finney Displays designs and manufactures displays used in mobile devices. Serious flooding throughout the region affected Finney Displays​' facilities. Inventory was completely​ ruined, and the​ company's computer​ system, including all accounting​ records, was destroyed.

Before the disaster recovery specialists clean the​ buildings, Heather Bailey​, the company ​controller, is anxious to salvage whatever records she can to support an insurance claim for the destroyed inventory. She is standing in what is left of the Accounting Department wtih Tad Myers​, the cost accountant. ​"I didn't know mud could smell so​ bad," Tad says.​ "What should I be looking​ for?" ​"Don't worry about beginning inventory​ numbers," responds Heather. "We'll get them from last​year's annual report. We need​ first-quarter cost​ data." "I was working on the​ first-quarter results just before the storm​ hit," Tad says.​ "Look, my​report's still in my desk drawer. But all I can make out is that for the first​ quarter, material purchases were $524,000 and that direct​ labor, manufacturing overhead​ (other than indirect​materials), and total manufacturing costs to account for were $545,000​; $218,000​; and$1,508,000​, respectively.​ Wait, and cost of goods available for sale was $1,615,000​." ​"Great," says Heather. ​"I remember that sales for the period were approximately $1.6million. Given our gross profit of 15​%, ​that's all you should​ need." Tad is not sure about​ that, but decides to see what he can do with this information.

Raw​ materials, $85,000
	Work in​ process, $187,000
	Finished​ goods, $209,000

He remembers several schedules he learned in college that may help him get started.

Start by determining the ending inventory of raw materials by calculating the direct materials used.

Finney Displays
Calculation of Direct Materials Used
For Current Year
Plus:
Less:

​Next, determine the ending inventory of work in process by calculating the cost of goods manufactured.

Finney Displays
Calculation of Cost of Goods Manufactured
For Current Year
Plus:
Less:

​Finally, determine the ending inventory of finished goods by calculating the cost of goods manufactured.

Finney Displays
Calculation of Cost of Goods Sold
For Current Year
Plus:
Less:

Answer 1

Part 1

Finney Displays

Calculation of Direct Materials Used

For Current Year

Beginning raw materials inventory	85000
Plus: Purchases of direct materials	524000
Materials available for use	609000
Less: Ending raw materials inventory	51000
Direct materials used	558000

Part 2

Finney Displays

Calculation of Cost of Goods Manufactured

For Current Year

Beginning work in process inventory	187000
Plus: Manufacturing costs incurred
Direct labor	545000
Direct materials used	558000
Manufacturing overhead	218000
Total manufacturing costs to account for	1508000
Less: Ending work in process inventory	102000
Cost of goods manufactured	1406000

Part 3

Finney Displays

Calculation of Cost of Goods Sold

For Current Year

Beginning finished goods inventory	209000
Plus: Cost of goods manufactured	1406000
Cost of goods available for sale	1615000
Less: Ending finished goods inventory	255000
Cost of goods sold	$1360000

Cost of goods sold = sales * (1-gross profit percentage) = 1600000*(1-15%) = $1360000

Ending finished goods inventory = Cost of goods available for sale - Cost of goods sold = 1615000-1360000 = $255000

Cost of goods manufactured = Cost of goods available for sale - Beginning finished goods inventory = 1615000-209000 = 1406000

Ending work in process = Total manufacturing costs to account for - Cost of goods manufactured = 1508000-1406000 = 102000

Total manufacturing cost incurred = Total manufacturing costs to account for – beginning WIP = 1508000 -187000 = 1321000

Direct materials used = Total manufacturing cost incurred- direct labor – manufacturing overhead = 1321000-545000-218000 = 558000

Ending raw materials inventory = beginning direct materials + purchases – direct materials used = 85000+524000-558000 = 51000