Question

McQueen Motor Company manufactures automobiles.

During September 2017, its first month of operations, the company purchased 5,000 head lamps at a cost of $15 per lamp.

McQueen withdrew 4,650 lamps from the warehouse during the month. Fifty of these lamps were used to replace the head lamps in autos used by traveling sales staff. The remaining 4,600 lamps were put in autos manufactured during the month. Of the autos put into production during September 2017, 90% were completed and transferred to the company’s storage lot. Of the cars completed during the month, 70% were sold by September 30.

Instructions

(a) Determine the cost of head lamps that would appear in each of the following accounts at September 30, 2017: Raw Materials, Work in Process, Finished Goods, Cost of Goods Sold, and Selling Expenses.

(b) Write a short memo to the chief accountant, indicating whether and where each of the accounts in (a) would appear on the income statement or on the balance sheet at September 30, 2017.