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PRTC Manufacturing Co.

The company took its annual physical inventory on November 30, 2012 which was observed by the auditor. The physical inventory revealed the book inventory was understated by P84,000. Several adjustments need to be made to the November 30 physical inventory including a P61,600 overstatement based on pricing tests, a P4,200 understatement due to errors, P280,000 of direct labor costs, and P7,000 of obsolete materials. The adjusted physical inventory at November 30, 2012 is P1,715,560.

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171 views

PRTC Manufacturing Co.

The company took its annual physical inventory on November 30, 2012 which was observed by the auditor. The physical inventory revealed the book inventory was understated by P84,000. Several adjustments need to be made to the November 30 physical inventory including a P61,600 overstatement based on pricing tests, a P4,200 understatement due to errors, P280,000 of direct labor costs, and P7,000 of obsolete materials. The adjusted physical inventory at November 30, 2012 is P1,715,560.

Uploaded by

hershey
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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PROBLEM NO.

You are engaged in the regular annual examination of the accounts and records of PRTC Manufacturing
Co. for the

year ended December 31, 2012. To reduce the workload at year end, the company, upon your
recommendation,

took its annual physical inventory on November 30, 2012. 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 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 P1,695,960 was understated by
P84,000.

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 items.

Your examination disclosed the following information regarding the November 30 inventory:

a. Pricing tests showed that the physical inventory was overstated by P61,600.

b. An understatement of the physical inventory by P4,200 due to errors in footings and extensions.

c. Direct labor included in the inventory amounted to P280,000. 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.

d. The physical inventory included obsolete materials with a total cost of P7,000. During December, the

obsolete materials were written off by a charge to cost of sales.

Your audit also disclosed the following information about the December 31 inventory:

a. Total debits to the following accounts during December were:

Cost of sales P1,920,800

Direct labor 338,800

Purchases 691,600

b. The cost of sales of P1,920,800 included direct labor of P386,400.


QUESTIONS:

Based on the above and the result of your audit, determine the following:

1. Adjusted amount of physical inventory at November 30, 2012

a. P1,715,560 c. P1,845,760

b. P1,631,560 d. P1,722,560

2. Adjusted amount of inventory at December 31, 2012

a. P1,509,760 c. P1,502,760

b. P1,516,760 d. P1,425,760

3. Cost of materials on hand, and materials included in work in process as of December 31, 2012

a. P819,560 c. P728,560

b. P812,560 d. P942,760

4. The amount of direct labor included in work in process as of December 31, 2012

a. P618,800 c. P338,800

b. P232,400 d. P386,400

5. The amount of factory overhead included in work in process as of December 31, 2012

a. P 772,800 c. P464,800

b. P1,237,600 d. P777,600

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