What is your estimate of the cost of work in process lost

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Reference no: EM133649329

Question: Sierra Corporation experienced a major fire in its production facilities on July 4th because of improperly stored fireworks. All work in process and finished goods were destroyed. Raw materials were not damaged as the materials were stored off-site. Data regarding the company's operations were recovered as follows: Sales Revenue through July 3 $430,000 Income from operations through July 3 98,000 Direct Labor through July 3 125,000 Inventory available for sale July 3 300,000 Work in Process Inventory, April 1 31,000 Finished Goods Inventory, April 1 48,000 Gross margin 35% of Sales Fiscal year end March 31 You have been retained to determine estimates of the loss of work in process and finished goods since Sierra and the insurance company cannot agree on the amounts lost. Your interview with the Sierra accountant finds the cost of direct materials averages 20% of prime costs (i.e., direct materials + direct labor) and production overhead is about 50% of Sierra's total production costs. What is your estimate of the cost of work in process lost?

Reference no: EM133649329

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