Mapleton Corporation builds sailboats. On January 1, 2019, the company had the f
ID: 2524630 • Letter: M
Question
Mapleton Corporation builds sailboats. On January 1, 2019, the company had the following account balances: $48,000 for both cash and common stock. Boat 25 was started on February 10 and finished on May 31. To build the boat, Mapleton had incurred cash costs of $8,640 for labor and $7,500 for materials. During the same period, Mapleton paid $11,160 cash for actual manufacturing overhead costs. The company expects to incur $210,600 of indirect overhead cost during 2019. The overhead is allocated to jobs based on direct labor cost. The expected total labor cost for the year is $162,000.
Mapleton uses a just-in-time inventory management system. Consequently, it does not have raw materials inventory. Raw materials purchases are recorded directly in the Work in Process Inventory account.
Required
Use the horizontal financial statements model to record Mapleton’s business events. The first row shows beginning balances.
If Mapleton desires to earn a profit equal to 20 percent of cost, for what price should it sell the boat?
If the boat is not sold by year-end, what amount would appear in the Work in Process Inventory and Finished Goods Inventory on the balance sheet for Boat 25?
Is the amount of inventory you calculated in Requirement c the actual or the estimated cost of the boat?
Explanation / Answer
1.
Assets = Liabilities + Equity
48000 =0+48000
2. 20% of the cost
Direct Material $7,500
Direct Labor $8,640
Manufacturing $11,160
overheads
Total Cost $ 27300
Profit $5460
Total Selling Price $32760
3. Inventory of Finished goods shall be value at cost or NRV whichever is lower
NRV-32760
Cost-27740
Finished Good will be valued at Cost which is Rs 27740
If it is WIP then it will be valued at cost which will be Direct Expenses and production overhead
Valuation of WIP -
Direct Material -7500
Direct Labour -8640
Production Overhead -11232(*)
Total 27372
* Production Overheads -210600/162000=1.3
Total Cost -1.3*8640=11232
4. For Calculation of WIP it is a estimated cost of inventory whereas for Finished Goods we have considered actual cost as per standard way of measurement of inventory