Hector P. Wastrel, a careless employee, left some combustible materials near an open flame in Salter

Company’s plant. The resulting explosion and fire destroyed the entire plant and administrative office.

Justin Quick, the company’s controller, and Constance Trueheart, the operations manager, were able

to save only a few bits of information as they escaped from the roaring blaze.

“What a disaster,” cried Justin. “And the worst part is that we have no records to use in filing an

insurance claim.”

“I know,” replied Constance. “I was in the plant when the explosion occurred, and I managed to grab

only this brief summary sheet that contains information on one or two of our costs. It says that our

direct labor cost this year totaled $180,000 and that we purchased $290,000 in raw materials. But I’m

afraid that doesn’t help much; the rest of our records are just ashes.”

“Well, not completely,” said Justin. “I was working on the year-to-date income statement when the

explosion knocked me out of my chair. I instinctively held onto the page I was working on, and from

what I can make our, our sales to date this year totaled $1,200,000 and our gross margin was 50% of

sales. Also, I can see that our goods available for sale to consumers totaled $810,000 at cost.”

“Maybe we’re not so bad off after all,” exclaimed Constance. “My sheet says that prime cost totaled

$410,000 so far this year and that manufacturing overhead is 80% of conversion cost. Now if we just

had some information on our beginning inventories.”

“Hey, look at this,” cried Justin. “It’s a copy of last year’s annual report, and it shows what our

inventories were when this year started. Let’s see, raw materials were $18,000, work in process was

$65,000 and finished goods were $45,000.

“Super,” yelled Constance. “Let’s go to work.”

To file an insurance claim, the company must determine the amount of cost in its inventories as of the

date of the fire. You may assume that all materials used in production during the year were direct

materials.

Required:

1. Determine the amount of cost in the Raw Materials inventory account as of the date of the

fire.

2. Determine the amount of cost in the Work in Process inventory account as of the date of

the fire.

3. Determine the amount of cost in the Finished Goods inventory account as of the date of

the fire.

4. How much is the value of loss this company should file a claim to its insurance company

for?

5. Can you give any suggestions to this company in accounting records backup and storage?

Grading Rubrics

1. Deadline and format: you must submit your work in hardcopy during the first 10

minutes of our class and your work must be typed; otherwise, zero points.

2. Academic Integrity: this is an individual project and you must provide your own work.

Copying from other people is not acceptable, both parties involved may receive zero

points on the project and any further actions in accordance with CSUB Academic Integrity

Policy will follow.

3. How is your work graded: this is a 50 point project which contributes 5% of your final

grade. Every question receives up to 10 point. The project will be graded in the following

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