Task: Managerial Accounting Problem
Young Manufacturing Company (YMC) was started when it acquired $40.000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable product cost (materials, labor, and overhead) amounting to $24,000. YMC also incurred $16,000 of engineering design and planning cost. There was a debate regarding how the design and planning cost should be classified. Advocates of Option1 believe that the cost should be classified as upstream general, selling, and administration costs. Advocates of Option2 believe it is more appropriate to classify the design and planning cost as product cost. During the year, YMC made 4,000 units of product and sold 3,000 units at a price of $24 each. All transactions were cash transactions.
Prepare an income statement, balance sheet, and statement of cash flow under each of the two options.