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    Insurance claim after the fire

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    Hector P. Wastre,l a careless employee, left some combustible materials near an open flame in Salter Company's plant. The resulting explosion and fire destroyed the entire plant and administrative offices. Justin, the company's controller and Constance, the operations manager were able to save only a few bits of information as they escaped from the roaring blaze.
    What a disaster, cried Justin and the worst part is that we have no records to use in filing an insurance claim.

    This brief summary sheet that contains information on one or two of our costs. It says that our direct labor cost this year totaled 180,000 and that we purchased 290,000 in raw materials.

    Year to date income statement, sales to date 1,200,000 gross margin 40% of sales, goods avail for sale to customers 810,000
    Prime cost totaled 410,000 manufacturing overhead is 70% conversion cost.

    Copy of last years annual report: beginning for this year raw materials 18,000 work in process 65,000 finished goods 45,000
    To file an insurance claim company must determine the amount of cost in its inventories as of the date of the fire. Assume that all materials used in production during year were direct materials

    Determine the amount of cost in Raw Materials, Work in Process, and Finished Goods (one way to proceed would be to reconstruct the various schedules and statements that would have been affected by the company's inventory during the period).

    Income Statement
    Sales $1,200,000.00
    Beginning finished goods inventory $45,000.00
    Add Cost of Goods Manufactured $765,000.00
    Good Available for Sale $810,000.00
    Deduct Ending merchandise Inventory $330,000.00
    Gross Margin $ 480,000.00
    Selling & Administrative Costs
    Net Operating Income $720,000.00

    Schedule of Cost of Goods Manufactured
    Direct Materials:
    Beginning Raw Materials Inventory $18,000.00
    Add Purchased of Raw Materials $290,000.00
    Raw Materials Avaialable for use: $308,000.00
    Deduct Ending Raw Materials
    Raw Materials Used in Production
    Direct Labor $180,000.00
    Manufacturing Overhead $420,000
    Total Manufacturing Cost
    Add Beginning Work in Process Inventory $65,000.00
    Deduct Ending Work in Process Inventory
    Cost of Goods Manufactured $765,000

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    Solution Summary

    The solution explains how to calculate the missing amounts to file an insurance claim after the fire