As a result of a downturn in the economy, Optiplex Corporation has excess productive capacity. On January 1, Year 3, Optiplex signed a special order contract to manufacture custom-design generators for a new customer. The customer requests that the generators be ready for pickup by June 15, Year 3, and guarantees it will take possession of the generators by July 15, Year 3. Optiplex incurred the following direct costs related to the custom-design generators:
Cost to complete the design of the generators ………………….$ 3,000
Purchase price for materials and parts ………………………….80,000
Transportation cost to get materials and parts to
manufacturing facility …………………………………………. 2,000
Direct labor (10,000 labor hours at $12 per hour) ……………. 120,000
Cost to store finished product (from June 15 to June 30) ……. 2,000
Because of the company's inexperience in manufacturing generators of this design, the cost of materials and parts included an abnormal amount of waste totaling $5,000. In addition to direct costs, Optiplex applies variable and fixed overhead to inventory using predetermined rates. The variable overhead rate is $2 per direct labor hour. The fixed overhead rate based on a normal level of production is $6 per direct labor hour. Given the decreased level of production expected in Year 3, Optiplex estimates a fixed overhead application rate of $9 per direct labor hour in Year 3.
Required:
Determine the amount at which the inventory of custom-design generators should be reported on Optiplex Corporation's June 30, Year 3, balance sheet. 14. To determine the amount at which inventory should be reported on the December 31, Year 1, balance sheet, Monroe Company compiles the following information for its inventory of Product Z on hand at that date:
• Historical cost ………………………………………………..$20,000
• Replacement cost ……………………………………………. 14,000
• Estimated selling price ……………………………………… 17,000
• Estimated costs to complete and sell ……………………….. 2,000
• Normal profit margin as a percentage of selling price ……… 20%