Question:
As of December 31, 2005, Stand Still Industries had $1,000 of raw materials nventory. At the beginning of 2005, there was $800 of materials on hand. During the year, the company purchased $122,000 of materials; however, it paid for only $117,000. How much inventory was requisitioned for use on jobs during 2005?
Answers:
The question is looking for the cost of goods manufactured (or used as it were) which is simply beginning inventory plus purchases, less ending inventory. Therefore:
800 + 122,000 - 1,000 = 121,800
The 117,000 does not factor in the calculation as it does not matter how much of the purchased material was actually paid for, only what its cost is.
Beginning Inventory ($800)
+ Purchases (lower of cost or market) ($117,000)
- Requisitions (Unknown)
= Ending Inventory ($1000)
Requisitions = $800 + $117,000 - $1,000 = $116,800
Jack
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