Problem 1: Cost classification and explanation
Assume that you must make a presentation to the marketing staff explaining the difference between product and period costs. Your supervisor tells you the marketing staff would also like clarification regarding prime and conversion costs and an explanation of how these terms fit with product and period cost. You are told that many on the staff are unable to classify costs in their merchandising activities.
Required
Prepare a one-page memorandum to your supervisor outlining your presentation to the marketing staff.
Problem 2: Inventory computation and reporting
Shown here are annual financial data at December 31, 2011, taken from two different companies.
Required:
1. Compute the cost of goods sold section of the income statement at December 31, 2011, for each company. Include the proper title and format in the solution.
2. Write a half-page memorandum to your instructor (a) identifying the inventory accounts and (b) describing where each is reported on the income statement and balance sheet for both companies.
Check:
(1) Slope Board's cost of goods sold, $686,000
Problem 3: Manufacturing and income statements; inventory analysis
The following calendar year-end information is taken from the December 31, 2011, adjusted trial balance and other records of Plaza Company.
Required:
1. Prepare the company's 2011 manufacturing statement.
2. Prepare the company's 2011 income statement that reports separate categories for (a) selling expenses and (b) general and administrative expenses.
Check:
(1) Cost of goods manufactured, $1,955,650
(2) Analysis Component
(3) Compute the (a) inventory turnover, defined as cost of goods sold divided by average inventory, and (b) days' sales in inventory, defined as 365 times ending inventory divided by cost of goods sold, for both its raw materials inventory and its finished goods inventory. (To compute turnover and days' sales in inventory for raw materials, use raw materials used rather than cost of goods sold.) Discuss some possible reasons for differences between these ratios for the two types of inventories. Round answers to one decimal place.