I. Calculating cost of goods sold for merchandising and manufacturing companies

Below are data for two companies:

	Company 1	Company 2
Beginning balances:
Merchandise Inventory	$12,500
Finished Goods Inventory		$16,750
Ending balances:
Merchandise Inventory	17,500
Finished Goods Inventory		19,500
Net Purchases	169,500
Cost of Goods Manufactured		176,750

1. Define the three business types: service, merchandising, and manufacturing.

2. Based on the data given for the two companies, determine the business type of each one.

3. Calculate the cost of goods sold of each company.

II. Mellon, Inc. designs and manufactures thermometers used in industrial businesses. A natural disaster occurred, inventory was completely ruined, and the companys computer system, including all account records, was destroyed.

Before the disaster recovery specialists clean the buildings,Felix, the company controller, is trying to salvage whatever records he can to support an insurance claim for the destroyed inventory. He is standing in what is left of the accounting department with Liz, the cost accountant.

Liz asked Felix what he should be looking for.

Dont worry about beginning inventory numbers, responds Felix, well get them from last years annual report. We need first-quarter cost data.

I was working on the first-quarter results just before the storm hit, Liz says. Look, my reports still in my desk drawer. All I can make out is that for the first quarter, material purchases were $572,400 and direct labor, manufacturing overhead, and total manufacturing costs to account for were $607,200, $295,200, and $1,711,200, respectively. Wait! Cost of goods available for sale was $1,609,200.

Great, says Felix. I remember that sales for the period were approximately $2,041,200. Given our gross profit of 30%, thats all you should need.

Liz is not sure about that, but decides to see what he can do with this information. The beginning inventory numbers were:

Raw Materials, $136,800

Work-in-Process, $276,000

Finished Goods, $186,000

1. Prepare a schedule showing each inventory account and the increases and decreases to each account. Use it to determine the ending inventories of Raw Materials, Work-in-Process, and Finished Goods.

2. Itemize a list of the cost of inventory lost.