To solve the problems given in the exercise, we first need to understand and analyze the accounting data provided. We will calculate the following:
- Direct material destroyed
- Cost of goods manufactured
- Finished goods destroyed
- WIP destroyed
Given Data:
- Direct materials used from January 1 to January 29, 2011: Br 160,000
- WIP January 1: Br 34,000
- Direct materials January 1: Br 16,000
- Finished goods inventory January 1, 2011: Br 36,000
- MOH cost: 40% of conversion cost
- Revenue: Br 500,000
- Direct labor cost: Br 180,000
- Prime cost: Br 294,000
- Gross profit based on sales: 20%
- Cost of Goods Available for Sale: Br 450,000
Step-by-step Calculations:
1. Direct Material Destroyed:
- We know the total direct materials used during the period is Br 160,000.
- Based on the information gathered, it is unclear how much of the total direct materials relates to the prior inventory we have for January 1, so we shall consider the total amount of direct material used which is Br 160,000.
To estimate the direct material destroyed, we assume all direct material was destroyed.
Direct Material Destroyed = Br 160,000
2. Cost of Goods Manufactured (COGM):
To calculate the COGM, the formula is as follows: \[ \text{COGM} = \text{Direct Materials Used} + \text{Direct Labor} + \text{Manufacturing Overhead} - \text{WIP (end)} \]
Step 1: Determine manufacturing overhead (MOH): Given MOH is 40% of conversion cost. The conversion cost includes direct labor and manufacturing overhead.
- Conversion cost = Direct Labor + MOH
- Let MOH = x
- Therefore, \( x = 0.4 \times (180,000 + x) \)
Solving for \( x \): \[ x = 0.4 \times 180,000 + 0.4x \] \[ x - 0.4x = 72,000 \] \[ 0.6x = 72,000 \implies x = 120,000 \]
So, MOH = Br 120,000.
Step 2: Calculate COGM: Now substituting the values back into the COGM formula, but we are not given the ending WIP directly, so we won’t need it for the destruction—we will assume WIP is all destroyed.
\[ \text{COGM} = 160,000 + 180,000 + 120,000 \] \[ \text{COGM} = 460,000 \]
3. Finished Goods Destroyed:
To find the Finished Goods destroyed, we look at the beginning finished goods inventory and the Cost of Goods Sold (COGS).
Step A: Calculate COGS: The gross profit is given as 20% of revenue. \[ \text{COGS} = \text{Revenue} - \text{Gross Profit} \] Where Gross Profit = 20% of 500,000 = 0.2 * 500,000 = 100,000 Thus, \[ \text{COGS} = 500,000 - 100,000 = 400,000 \]
Step B: Finished Goods destroyed calculation: Using the Cost of Goods Available for Sale (which is given as Br 450,000), we can calculate: \[ \text{Finished Goods Destroyed} = \text{Cost of Goods Available for Sale} - \text{COGS} \] \[ \text{Finished Goods Destroyed} = 450,000 - 400,000 = 50,000 \]
4. WIP Destroyed:
Assuming all WIP as of January 29, 2011, is destroyed, we have: \[ \text{WIP Destroyed} = \text{WIP beginning January 1} = Br 34,000 \]
Summary of Results:
- Direct Material Destroyed: Br 160,000
- Cost of Goods Manufactured: Br 460,000
- Finished Goods Destroyed: Br 50,000
- WIP Destroyed: Br 34,000
These calculations provide insight into the inventory losses suffered by the XYZ manufacturing company due to the fire incident.
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