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Chapter 16: 5RQ (page 884)
List the four IMA standards of ethical practice, and briefly describe each.
The four IMA standards for ethical practice are competence, confidentiality, integrity, and credibility.
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Power Switch, Inc. designs and manufactures switches used in telecommunications. Serious flooding throughout North Carolina affected Power Switch鈥檚 facilities. Inventory was completely ruined, and the company鈥檚 computer system, including all accounting records, was destroyed.
Before the disaster recovery specialists clean the buildings, Stephen Plum, the company controller, is anxious to salvage whatever records he can to support an insurance claim for the destroyed inventory. He is standing in what is left of the accounting department with Paul Lopez, the cost accountant.
鈥淚 didn鈥檛 know mud could smell so bad,鈥� Paul says. 鈥淲hat should I be looking for?鈥�
鈥淒on鈥檛 worry about beginning inventory numbers,鈥� responds Stephen, 鈥渨e鈥檒l get them from last year鈥檚 annual report. We need first-quarter cost data.鈥�
鈥淚 was working on the first-quarter results just before the storm hit,鈥� Paul says. 鈥淟ook, my report is still in my desk drawer. All I can make out is that for the first quarter, direct material purchases were \(476,000 and direct labor, manufacturing overhead, and total manufacturing costs to account for were \)505,000, \(245,000, and \)1,425,000, respectively. Wait! Cost of goods available for sale was \(1,340,000.鈥�
鈥淕reat,鈥� says Stephen. 鈥淚 remember that sales for the period were approximately \)1,700,000. Given our gross profit of 30%, that鈥檚 all you should need.鈥�
Paul is not sure about that but decides to see what he can do with this information. The beginning inventory numbers were:
鈥� Direct Materials, \(113,000
鈥� Work-in-Process, \)229,000
鈥� Finished Goods, $154,000
Requirements
1. Prepare a schedule showing each inventory account and the increases and decreases to each account. Use it to determine the ending inventories of Direct Materials, Work-in-Process, and Finished Goods.
2. Itemize a list of the cost of inventory lost.
Identify each cost as a period cost or a product cost. If it is a product cost, further indicate if the cost is direct materials, direct labor, or manufacturing overhead. Then determine if the product cost is a prime cost and/or a conversion cost.
8. Property taxes on the factory
Computing direct materials used
Tuscany, Inc. has compiled the following data:
Purchases of Direct Materials $ 6,300
Freight In 400
Property Taxes 800
Ending Direct Materials 1,300
Beginning Direct Materials 4,100
Compute the amount of direct materials used.
Question:Classifying period costs and product costs
Lawlor, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while manufacturing weed trimmers:
鈥� Shaft and handle of weed trimmer
鈥� Motor of weed trimmer
鈥� Factory labor for workers assembling weed trimmers
鈥� Nylon thread used by the weed trimmer (not traced to the product)
鈥� Glue to hold the housing together
鈥� Plant janitorial wages
鈥� Depreciation on factory equipment
鈥� Rent on plant
鈥� Sales commissions
鈥� Administrative salaries
鈥� Plant utilities
鈥� Shipping costs to deliver finished weed trimmers to customers
Requirements
1. Describe the difference between period costs and product costs.
2. Classify Lawlor鈥檚 costs as period costs or product costs. If the costs are product costs, further classify them as direct materials, direct labor, or manufacturing overhead.
Question:Calculating cost of goods sold for merchandising and manufacturing companies
Below are data for two companies:
Company A Company B
Beginning balances:
Merchandise Inventory \( 10,600
Finished Goods Inventory \) 15,000
Ending balances:
Merchandise Inventory 13,100
Finished Goods Inventory 11,700
Net Purchases 154,500
Cost of Goods Manufactured 214,500
Requirements
1. Define the three business types: service, merchandising, and manufacturing.
2. Based on the data given for the two companies, determine the business type of each one.
3. Calculate the cost of goods sold for each company
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