“ACCT
505 Case Study I
Top
Switch Inc. designs and manufactures switches used in telecommunications.
Serious flooding throughout the state of Tennessee affected Top Switchs
facilities. Inventory was completely ruined, and the companys computer system,
including all accounting records, was destroyed.
Before
the unfortunate incident, recovery specialists cleaned the buildings. The
company controller is very nervous and anxious to recover whatever records he
can to support the insurance claim for the destroyed inventory. After
consulting with the cost accountant, they decide to retrieve the previous
years annual report for the beginning inventory numbers. In addition, they
also agreed that they need first quarter cost data.

The cost accountant was working on the first quarter results before the storm hit,
and to his surprise, the report was still in his desk drawer. After reviewing
the data , the information shows the following information: Material purchases
were $ 325,000; Direct Labor was $ 220,000. Further discussions between the
controller and the cost accountant revealed that sales were $ 1,350,000 and the
gross margin was 30% of sales. The cost accountant also discovered, while
sifting through the information, that cost of goods available for sale was $ 1,020,000
at cost. While assessing the damage, the controller determined that the prime
costs were $ 545,000 up to the time of the damage and that manufacturing
overhead is 65% of conversion cost. The cost accountant is not sure about all
of this, but he decides to see what he can do with the information.
The
beginning inventory numbers are as follows:
Raw
Materials, $ 41,000
Work
in Process, $ 56,000
Finished
Goods, $ 35,000
Required:
Determine the amount of cost
in the Raw Materials, Work in Process, and Finished Goods Inventory as of the
date of the storm. ( Hint: You may wish to reconstruct the various schedules
and statements that would have been affected by the companys accounts during
the period.)ACCT
505 Case Study I Top
Switch Inc. designs and manufactures switches used in telecommunications.
Serious flooding throughout the state of Tennessee affected Top Switchs
facilities. Inventory was completely ruined, and the companys computer system,
including all accounting records, was destroyed. Before
the unfortunate incident, recovery specialists cleaned the buildings. The
company controller is very nervous and anxious to recover whatever records he
can to support the insurance claim for the destroyed inventory. After
consulting with the cost accountant, they decide to retrieve the previous
years annual report for the beginning inventory numbers. In addition, they
also agreed that they need first quarter cost data.The
cost accountant was working on the first quarter results before the storm hit,
and to his surprise, the report was still in his desk drawer. After reviewing
the data , the information shows the following information: Material purchases
were $ 325,000; Direct Labor was $ 220,000. Further discussions between the
controller and the cost accountant revealed that sales were $ 1,350,000 and the
gross margin was 30% of sales. The cost accountant also discovered, while
sifting through the information, that cost of goods available for sale was $ 1,020,000
at cost. While assessing the damage, the controller determined that the prime
costs were $ 545,000 up to the time of the damage and that manufacturing
overhead is 65% of conversion cost. The cost accountant is not sure about all
of this, but he decides to see what he can do with the information. The
beginning inventory numbers are as follows:Raw
Materials, $ 41,000Work
in Process, $ 56,000Finished
Goods, $ 35,000Required:Determine the amount of cost
in the Raw Materials, Work in Process, and Finished Goods Inventory as of the
date of the storm. ( Hint: You may wish to reconstruct the various schedules
and statements that would have been affected by the companys accounts during
the period.)”