Maddox Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets. Since beginning operations in 1988, Maddox has used normal absorption costing and has assumed a first-in, first-out cost flow in its perpetual inventory system. The balances of the inventory accounts at the end of Maddox's fiscal year, November 30, 2012, are shown below. The inventories are stated at cost before any year-end adjustments.
- One-half of the head tube shifter finished goods inventory is held by catalog outlets on consignment.
- Three-quarters of the bar end shifter finished goods inventory has been pledged as collateral for a bank loan.
- One-half of the raw materials balance represents derailleurs acquired at a contracted price 20 percent above the current market price. The market value of the rest of the raw materials is $127,400.
- The total market value of the work-in-process inventory is $108,700.
- Included in the cost of factory supplies are obsolete items with an historical cost of $4,200. The market value of the remaining factory supplies is $65,900.
- Maddox applies the lower-of-cost-or-market method to each of the three types of shifters in finished goods inventory. For each of the other three inventory accounts, Maddox applies the lower-of-cost-or-market method to the total of each inventory account.
- Consider all amounts presented above to be material in relation to Maddox' financial statements taken as a whole.