Answer with solutions

PROBLEM 7 You are engaged in the regular annual examination of the accounts and records of Buddy Manufacturing Company for the year ended December 31, 2004. To reduce the work load at year-end, the company, upon your recommendation, took its annual physical inventory on November 30, 2004. You observed the taking of the inventory and made tests of the inventory count and the inventory records. The company's inventory account, which includes raw materials and work-in-process is on a perpetual basis. Inventories are valued at cost, first-in, first-out method. There is no finished goods inventory. The company's physical inventory revealed that the book inventory of P4,239,900 was understated by P210,000. To avoid delay in completing its monthly financial statements, the company decided not to adjust the book Inventory until year end except for obsolete Inventory. You examination disclosed the following information regarding the November 30 inventory: 1. Pricing tests showed that physical inventory was overstated by P154,000. 2. An understatement of the physical Inventory by P10,500 due to errors in footings and extensions, 3. Direct labor included in the inventory amounted to P700,000. Overhead was included at the rate of 200% of direct labor. You have ascertained that the amount of direct labor was correct and that the overhead rate was proper 4. The physical inventory included obsolete materials with a total cost of P17,500. During December, the obsolete materials were written off by a change to cost of sales. Your audit also disclosed the following information about the December 31 inventory: 1. Total debits to the following accounts during December were: Cost of sales 4,802,000 Direct labor 847,000 Manufacturing expense 1,764,000 Purchases 1,729,000 Includes direct labor of P966,000 and manufacturing overhead of P1,932,000. 2. Scrap loss on established product lines is normally insignificant. However, a special order started and completed during December had a scrap loss of P56,000. This amount was charged to manufacturing expense. Questions: 27. The adjusted amount of physical inventory at November 30, 2004 is: a. P 4,078,900 b. P 4,288,900 C. P 4,498,900 d. P 4,596,900 28. The adjusted amount of inventory at December 31, 2004 is: a. P 3,844,400 b. P 3,826,900 c. P 3,774,400 d. P 3,756,900 29. The raw materials included in the ending inventory at December 31, 2004 is: a. P 1,961,400 b. P 2,013,900 C. P 2,031,400 d. P 2,188.900 30. The direct labor included in the ending inventory at December 31, 2004 is: a. P 581,000 b. P 847,000 C. P 700,000 d. P 966,000 31. The total cost of sales for December 31, 2004 is: a. P 4,854,500b. P 4,802,000 C. P 4,784,500 d. P 4,714,500