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Chapter 16: Q16-5SE-h (page 886)
Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:
h. Cost to purchase wood pulp.
The cost to purchase wood pulp will come under the product cost.
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Applying ethical standards
Ava Borzi is the new controller for Halo Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9% for the first time in the company鈥檚 five-year history. Busch explains that financial analysts have again predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He suggests that Borzi talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing \(18,000 in invoices until January 1.
b. Record as sales \)120,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of the next year鈥檚 sales are included in this year鈥檚 sales.
d. Reduce the estimated Bad Debts Expense from 3% of Sales Revenue to 2%, given the company鈥檚 continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. How might these inconsistencies affect the company鈥檚 creditors and stockholders?
3. What should Borzi do if Busch insists that she follow all of these suggestions?
Classifying costs Wheels, Inc. manufactures wheels for bicycles, tricycles, and scooters. For each cost given below, determine if the cost is a product cost or a period cost. If the cost is a product cost, further determine if the cost is direct materials (DM), direct labor (DL), or manufacturing overhead (MOH) and then determine if the product cost is a prime cost, conversion cost, or both. If the cost is a period cost, further determine if the cost is a selling expense or administrative expense (Admin). Cost (a) is answered as a guide
Cost Product Period
DM DL MOH Prime Conversion Selling Admin.
a. Metal used for rims
b. Sales salaries
c. Rent on factory
d. Wages of assembly workers
e. Salary of production supervisor
f. Depreciation on office equipment
g. Salary of CEO
h. Delivery expense
Preparing an income statement and calculating unit cost for a service company
The Glass Doctors repair chips in car windshields. The company incurred the following operating costs for the month of July 2018:
Salaries and wages \( 10,000
Windshield repair materials 4,100
Depreciation on truck 500
Depreciation on building and equipment 900
Supplies used 450
Utilities 4,550
The Glass Doctors earned \)25,000 in service revenues for the month of July by repairing 250 windshields. All costs shown are considered to be directly related to the repair service.
Requirements
1. Prepare an income statement for the month of July.
2. Compute the cost per unit of repairing one windshield, rounded to the nearest cent.
3. The manager of The Glass Doctors must keep unit operating cost below $80 per windshield in order to get his bonus. Did he meet the goal?
Calculating cost of goods sold for merchandising and manufacturing companies
Below are data for two companies:
Company 1 Company 2
Beginning balances:
Merchandise Inventory \( 11,600
Finished Goods Inventory \) 15,400
Ending balances:
Merchandise Inventory 12,400
Finished Goods Inventory 11,300
Net Purchases 152,500
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
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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