Reference no: EM133010539
Question - On April 12, after the close of business, Singh & Sons had a devastating fire that destroyed the company's work-in-process and finished-goods inventories. Fortunately, all raw materials escaped damage because materials owned by the firm were stored in another warehouse. The following information is available:
Sales revenue through April 12 $340,000
Income before taxes through April 12 68,000
Direct labor through April 12 120,000
Cost of goods available for sale, April 12 275,000
Work-in-process inventory, January 1 21,000
Finished-goods inventory, January 1 35,000
Gross margin 30% of sales
The firm's accountants determined that the cost of direct materials used normally averages 25 percent of prime costs (i.e., direct material + direct labor). In addition, manufacturing overhead is 50 percent of the firm's total production costs.
Required - Singh & Sons is in the process of negotiating a settlement with its insurance company. Prepare an estimate of the cost of work-in-process and finished-goods inventories that were destroyed by the fire.
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