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The following date were taken the records of Best Company: 8/31/2011 9/30/2011 Raw materials 50,000 Work in process 80,000 95,000 Finished goods 60,000 78,000 Raw materials purchases, P46,000 Factory overhead, 75% of direct labor cost, P63,000
The following date were taken the records of Best Company: 8/31/2011 9/30/2011 Raw materials 50,000 Work in process 80,000 95,000 Finished goods 60,000 78,000
Raw materials purchases, P46,000 Factory overhead, 75% of direct labor cost, P63,000. Selling and administrative expenSe5 12.5% of sales, P25,000 Net income for September, 2011, P25,000
What is the cost of raw materials inventory on August 31, 2011? A. P30,000 C. P46,000 B. P40,000 D. P50.000
Expert Solution
Answer
B .
Explanation
| Computation of Cost of Raw Material Inventory on August 31, 2011: | ||
| Cost of goods manufactured | 168,000 | |
| Add: Increase in work in process inventory | 15,000 | |
| Manufacturing costs to process during September | 183,000 | |
| Less: Coversion costs | ||
| Direct labor (63,000/.75) | 84,000 | |
| Factory overhead | 63,000 | 147,000 |
| Raw material used | 36,000 | |
| Add: Raw materials inventory, September 30 | 50,000 | |
| Total raw material available for use | 86,000 | |
| Less : Raw materials purchases | 46,000 | |
| Raw materials inventory, August 31, 2011 | 40,000 | |
Workings:
Cost of goods sold = Sales - Selling and administrative expenses - Net incomne
= (25,000/12.5%) - 25000 - 25000 = 150,000
Cost of goods manufactured = Cost of goods sold + Ending finished goods inventory - Beginning finished goods inventory
= 150,000 + 78,000 - 60,000 = 168,000
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