Todd Motor Company manufactures automobiles. During September 2020, the company purchased 5,000 headlights at a cost of $8 per lights. There was no beginning inventory of lights. Todd withdrew 4,650 lights from the warehouse during the month of September. Fifty of these lights were used to replace the headlights in automobiles used by travelling sales staff. The remaining 4,600 lights were put in automobiles manufactured during the month.

Determine the amount of cost to appear in various accounts, and indicate in which financial statements these accounts would appear. 

Of the autos put into production during September 2020, 90% were completed and transferred to the company’s storage lot. Of the cars completed during the month, 75% were sold by September 30.

Instructions

a. Determine the cost of headlights that would appear in each of the following accounts on September 30, 2020: Raw Materials, Work in Process, Finished Goods, Cost of Goods Sold, and Selling Expenses.

b. Write a short memo to the chief accountant, indicating whether and where each of the accounts in part (a) would appear on the income statement or on the balance sheet at September 30, 2020.