Maddox Specialty Company, a division of Lost World Inc., manufactures three mode
ID: 2441797 • Letter: M
Question
Maddox Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets. Since beginning operations in 1978, Maddox has used normal absorption costing and has assumed a first-in, first-out cost flow in its perpetual inventory system. The balances of the inventory accounts at the end of Maddox's fiscal year, November 30, 2010, are shown below. The inventories are stated at cost before any year-end adjustments.
Finished goods $647,000
Work-in-process 112,500
Raw materials 264,000
Factory supplies 69,000
The following information relates to Maddox's inventory and operations.
The finished goods inventory consists of the items analyzed below.
Cost Market
Down the tube shifter
Standard model $67,500 $67,000
Click adjustment mod 94,500 89,000
Deluxe model 108,000 110,000
Total down the tube shifters $270,000 $266,000
Bar end shifter
Standard model 83,000 90,050
Click adjustment model 99,000 97,550
Total bar end shifters $182,000 $187,600
Head tube shifter
Standard model 78,000 77,650
Click adjustment model 117,000 119,300
Total head tube shifters 195,000 196,950
Total finished goods $647,000 $650,550
: One-half of the head tube shifter finished goods inventory is held by catalog outlets on consignment.
: Three-quarters of the bar end shifter finished goods inventory has been pledged as collateral for a bank loan.
: One-half of the raw materials balance represents derailleurs acquired at a contracted price 20 percent above the current market price. The market value of the rest of the raw materials is $127,400.
: The total market value of the work-in-process inventory is $108,700.
Included in the cost of factory supplies are obsolete items with an historical cost of $4,200. The market value of the remaining factory supplies is $65,900.
: Maddox applies the lower-of-cost-or-market method to each of the three types of shifters in finished goods inventory. For each of the other three inventory accounts, Maddox applies the lower-of-cost-or-market method to the total of each inventory account.
: Consider all amounts presented above to be material in relation to Maddox' financial statements taken as a whole.
Prepare the inventory section of Maddox's balance sheet as of November 30, 2010. (List multiple entries from the largest positive to the smallest positive amount, e.g. 10, 5, 2.)
Current Assets
Inventory Section .
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Total inventories $ ------------------------
Explanation / Answer
Prepare the inventory section of Maddox's balance sheet as of November 30, 2010. (List multiple entries from the largest positive to the smallest positive amount, e.g. 10, 5, 2.)
Finished Goods LCM (Lower of Cost or Market) Schedule
Cost Market LCM
Down tube shifter 270,000 266,000 266,000
Bar end shifer 182,000 187,600 182,000
Head tube shifter 195,000 196,950 195,000
Total 647,000 650,550 643,000
Work In Process Inventory LCM Schedule
Cost Market LCM
WIP Inventory 112,500 108,700 108,700
_________________________________
Raw Materials LCM schedule
Cost Market LCM
Derailleurs 132,000 110,000 110,000
(132,000/1.2)
Remaining
raw materials 132,000 127,400 127,400
_________________________________
264,000 237,400 237,400
__________________________________
Supplies LCM schedule
Cost Market LCM
Supplies account balance 69,000
less Obsolete supples -4,200
_________________________________
64,800 65,900 64,800
__________________________________
Current assets
Inventory Section (Note 1.)
Finished goods (Note 2.) $643,000
Work-in-process $108,700
Raw materials $237,400
Factory supplies $64,800
Total inventories $1,053,900
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