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Chapter 16: Q20RQ (page 885)
How does a merchandising company calculate unit cost per item?
The merchandising company calculates the unit cost per item by calculating a total number of items sold from the total cost of goods sold.
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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
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
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
Preparing an income statement and calculating unit cost for a merchandising company
Dillon Young owns Dillon’s Pets, a small retail shop selling pet supplies. On December 31, 2018, the accounting records for Dillon’s Pets showed the following:
Merchandise Inventory on December 31, 2018 $ 10,500
Merchandise Inventory on January 1, 2018 16,000
Net Sales Revenue 56,000
Utilities Expense for the shop 3,200
Rent for the shop 4,100
Sales Commissions 2,750
Purchases of Merchandise Inventory 25,000
Requirements
1. Prepare an income statement for Dillon’s Pets for the year ended December 31, 2018.
2. Dillon’s Pets sold 5,550 units. Determine the unit cost of the merchandise sold, rounded to the nearest cent.
Question:Applying ethical standards
Natalia Wallace is the new controller for Smart Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the company’s five-year history. Cauvet explains that financial analysts have again predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace 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 \(13,000 in invoices until January 1.
b. Record as sales \)115,000 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’s sales are included in this year’s sales.
d. Reduce the estimated Bad Debts Expense from 5% of Sales Revenue to 3%, given the company’s 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’s creditors and stockholders?
3. What should Wallace do if Cauvet insists that she follow all of these suggestions?
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