COST ACCOUNTING AND COST MANAGEMENT 1

Quiz No. 2
Solve the given problem: (Show your complete solution)
A mentally deranged employee, Mr. Arson, put a torch to a factory on February 20,
2018. The resulting fire completely destroyed the plant and its contents. Fortunately,
certain accounting records were kept in another building. They revealed the following for
the period December 31, 2017 to February 20, 2018:
Prime cost, P301,000
Gross Profit, P100,000 or 20% of sales
Cost of Goods Available for Sale, P460,000
Direct Materials purchased, P170,000
Work in process, December 31, 2017, P34,000
Direct materials, December 31, 2017, P16,000
Finished Goods, December 31, 2017, P30,000
Factory overhead, 40% of conversion cost
Direct Labor, P180,000
The insurance company wants to know the approximate cost of the inventories as a
basis for negotiating a settlement.
Compute for the following:
1. Direct Materials Inventory, 2/20/2018 = 65,000
2. Work in Process Inventory, 2/20/2018 = 25,000
3. Finished Goods Inventory, 2/20/2018 = 60,000
4. Total Manufacturing Cost = 421,000
5. Indirect Materials =0
6. Cost of Goods Placed in Process = 455,00
7. Cost of Goods Manufactured = 430,000
8. Cost of Goods Sold = 400,000
9. Sales = 500,000

Solution:
Raw Materials, beginning 16,000.00
Add: Net Purchases 170,000.00
 Total Raw Materials Available for Use 186,000.00
Less: Raw Materials, ending 65,000.00
Total Raw Materials Used 121,000.00
Less: Indirect Materials Used -
Direct Materials Used 121,000.00
Add: Direct Labor 180,000.00
Add: Manufacturing Overhead 120,000.00
Total Manufacturing Costs 421,000.00
Add: Work in Process, beginning 34,000.00
Total Costs of Goods Placed in Process 455,000.00
Less: Work in Process ending 25,000.00
Cost of Goods Manufactured 430,000.00
Add: Finished Goods, beginning 30,000.00
Total Goods Available for Sale 460,000.00
Less: Finished Goods, end 60,000.00
Cost of Goods Sold 400,000.00
Direct Materials Used = Prime Cost – Direct Labor
301,000 – 180,000 = 121,000
Direct Material 121,000.00

Manufacturing Overhead
180,000 ÷ 60% = 300,000
300,000 × 40% = 120,000
Manufacturing Overhead 120,000.00
Net Sales
100,000 ÷ 20% = 500,000
Net Sales 500,000.00
Less: Cost of Goods Sold 400,000.00
Gross Profit 100,000.00