APPLIED AUDITING

INVENTORY

PROBLEM SOLVING: Write your solutions in good form

PROBLEM #1

On February 20, 2013, a fire occurred on the warehouse of Caleb Co. The fire completely destroyed the
warehouse and its content. Fortunately, certain accounting records were kept in another building. They
revealed the following for the period December 31, 2014 to February 20, 2015:

Prime cost 602,000

Gross profit on sales in 20%

Cost of goods available for sale 920,000

Direct materials purchased 340,000

Work in process, December 31, 2014 68,000

Direct Materials, December 31, 2014 32,000

Finished goods, December 11, 2014 60,000

Factory overhead is 40% of conversion cost

Sales 1,000,000

Direct Labor 360,000

Based on the above data, compute the following on February 20, 2014

1. Direct materials used during the period

2. Cost of gods manufactured
3. Estimated direct materials inventory
4. Estimated work in process inventory
5. Estimated finished goods inventory
6. What is the correct amount of inventory?
PROBLEM #2

Jhonna incurred the following costs and relation to its merchandize inventory.

1. Items out on consignment at another company's store 1,000,000

2. Items sold out on consignment at another company's store 70,000
3. Items sold on an instalment basis (bad debts can be reasonably estimated) 40,000
4. Items purchased FOB destination that is in transit on December 31 500,000
5. Freight charges on goods purchase above 13,000
6. Items purchased FOB destination that is in transit on December 31 300,000
7. Items sold to another company, for which the company has signed an
agreement to repurchase at a set price that covers all costs related to the
inventory. Total cost of merchandise is 200,000
8. items sold where large returns are predictable, at cost 30,000
9. items sold FOB shipping point that is in transit at December 31, at cost 50,000
10. items sold FOB destination that is in transit at December 31, at cost 75,000
11. Costs incurred to advertise goods held for resale 10,000
12. Items held on consignment from another company at selling price of
P150,000 and cost of 100,000
13. Short term investments in stock and bonds that will be resold in the near future 125,000
14. Items currently being use for window display 100,000
15. Items on counter for sale 400,000
16. Items on receiving dept, refused by the company because of damage 360,000
17. Items included in the count, damaged and unsalable 150,000
18. Items in receiving department, returned by customer, in good condition (not
included in the count) 50,000
19. Merchandise inventories out on approval, at cost 100,000
20. Finished special article goods, made to order (included in the count) 78,000
21. Office supplies 40,000