Answers to Case
a. The costs expected to be in the raw materials inventory are costs of materials such as wood, iron, plastic, and/or optic fiber that have yet to be placed in production. The costs expected to be in the work in process inventory are the cost of materials placed in production plus the labor and allocated overhead utilized so far. The costs expected to be in the finished goods inventory are the materials, labor, and allocated overhead incurred to make the finished products on hand.
b. Inventories are net of an estimated allowance for obsolete or unmarketable inventory.
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c. i. The Reserve for obsolete inventories’ account does not appear on Callaway’s financial statements because it has already been subtracted off the inventory account. The gross amount of inventory at the end of 2006 is $247,795. 00, and at the end of 2007 is $232,872. 00 Of the $20,129. 00 of the reserve for obsolete inventory, $6,537. 90, is attributable to raw materials inventory, 154. 99 is attributable to work-in-process inventory, and $13,436. 11 to finished goods inventory.
d. JE to record activity in reserve for obsolete inventory during 2007 (in thousands)
Cost of Sales $ 12,182. 00
Provision for obsolete inventory 12,182. 00
Provision for obsolete inventory 9,368. 00
Inventory 9,368. 00
e. i. The cost of finished goods sold in 2007 was $619,186. 00 The cost of finished goods transferred from work-in-process in 2007 was $247,109
iii. The cost of raw materials transferred to work-in-process in 2007 was $90,982. 00 The cost of raw materials purchased during 2007 was $87,369. 00
v. The amount of cash disbursed for raw-material purchases during 2007 was $54,350. 00. ($95,297. 00-$40,947. 00)
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