In 100 words or fewer, explain the difference between product costs and period costs. In your explanation, explain the inventory accounts of a manufacturer.
Period cost are the operating expenses and the products costs are which incurred for manufacturing the product.
The manufacturing company is defined as the company which convert raw material into finished goods using labor, machinery and supplies.
Period costs are operating costs which are expensed in the same accounting period in which they are incurred, on the other hand, the product costs are recorded as an asset and not expensed until the goods sold, then they are recorded as the expense known as cost of goods sold.
Match the term with the correct definition.
1. A philosophy designed to integrate all organizational areas in order to provide customers with superior products and services while meeting organizational objectives. Requires improving quality and eliminating defects and waste.
2. Use of the Internet for business functions such as sales and customer service. Enables companies to reach customers around the world.
3. Evaluating a company’s performance by its economic, social, and environmental impact.
4. Software system that integrates all of a company’s functions, departments, and data into a single system.
5. A system in which a company produces products just when they are needed to satisfy needs. Suppliers deliver materials when they are needed to begin production, and finished units are completed at the right time for delivery to customers.
a. ERP b. JIT c. E-commerce d. TQM e. Triple bottom line
Computing cost of goods sold, merchandising company
Use the following information for The Windshield Helper, a retail merchandiser of auto windshields, to compute the cost of goods sold:
Web Site Maintenance $ 7,900
Delivery Expense 400
Freight In 2,400
Ending Merchandise Inventory 5,500
Marketing Expenses 10,700
Beginning Merchandise Inventory 8,600
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.
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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