Question

A tornado struck the only manufacturing plant of Toledo Farm Implements (TFI) on June 1. All work-in-process inventory was destroyed, but a few records were salvaged from the wreckage and from the company's headquarters. If acceptable documentation is provided, the loss will be covered by insurance. The insurable value of work-in-process inventory consists of direct materials, direct labor, and applied overhead. The following information about the plant appears on the April financial statements at the company's downtown headquarters: Materials inventory, April 30 $ 98,000 Work-in-process inventory, April 30 172,400 Finished goods inventory, April 30 64,000 Cost of goods sold through April 30 697,200 Accounts payable (materials suppliers), April 30 43,200 Manufacturing overhead through April 30 369,800 Payroll payable, April 30 0 Withholding and other payroll liabilities, April 30 19,400 Overhead applied through April 30 359,200 A count of the inventories on hand May 31 shows the following: Materials inventory $ 86,000 Work-in-process inventory

Required:
Determine the cost of the work-in-process inventory lost in the disaster.

Answer 1

Calculating the lost WIP inventory involves starting with the April 30 WIP value, adding May's manufacturing costs, and subtracting any remaining inventory. Without complete data, an exact calculation isn't possible, and TFI must work with their insurer to estimate the loss.

Step-by-step explanation:

To determine the cost of the work-in-process (WIP) inventory lost in the disaster at Toledo Farm Implements (TFI), we need to calculate the WIP as of May 31. This is done by adding the beginning WIP inventory to the total manufacturing costs incurred during the month (materials used, direct labor, and overhead applied) and then subtracting the ending WIP inventory (if any).

Starting with the WIP inventory as of April 30, which was $172,400, we then add the costs of materials used, direct labor, and manufacturing overhead applied during May. The value of materials used can be calculated by taking the beginning materials inventory, adding purchases (which can be calculated by the change in accounts payable if that represents solely material purchases), and then subtracting the ending materials inventory. The exact amount of materials purchased is not provided, but if we assume all accounts payable were for materials, purchases would be the change in accounts payable plus the materials used during May. We need additional data for direct labor costs and actual overhead costs for May to make a complete calculation, but we know the applied overhead figure is $359,200 as of April 30.

The missing figures make it impossible to calculate the exact loss without assumptions or additional data. If such data is unattainable, TFI should consult with their insurer on an estimation method acceptable for the insurance claim.