ACC 100 Lecture Notes - Lecture 5: Gross Margin, Accounts Payable, Current Asset

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scarletmouse309

28 Apr 2017

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When sold, moves from asset to cost of goods sold owned/future benefit. Sp = cost + (cost x markup %) Gross profit margin: the difference, in dollars, between the selling price and the cost that the retailer paid to buy the inventory. Gross profit margin ratio (gpm/sales revenue x 100) Costs that a business incurs in the normal course of the business that are not product costs. Agreement between the business and the supplier with regards to when invoices have to be paid. 10 = # of days to get the discount. 30 = final day you must pay the whole amount. Based on either value or weight/dimensions of the item(s) Receiver pays and has ownership of the goods while in transit. If anything happens to the goods while in transit, the receiver is responsible. Free to the receiver up until the goods reach the shipper"s door. Shipper pays shipping costs and has ownership of the goods while in transit.

Related Questions

Mercer Inc. is a retailer operating in British Columbia. Merceruses the perpetual inventory method. All sales returns fromcustomers result in the goods being returned to inventory; theinventory is not damaged. Assume that there are no credittransactions; all amounts are settled in cash. You are providedwith the following information for Mercer Inc. for the month ofJanuary 2014

Date		Description	Quantity	Unit Cost or Selling Price
January	1	Beginning inventory	200	$12
January	5	Purchase	280	15
January	8	Sale	220	24
January	10	Sale return	20	24
January	15	Purchase	110	16
January	16	Purchase return	10	16
January	20	Sale	180	29
January	25	Purchase	40	19

Calculate the Moving-average cost per unit at January 1, 5, 8,15, 20, & 25.

For each of the following cost flow assumptions, calculate costof goods sold, ending inventory, and gross profit. (1) LIFO. (2)FIFO. (3) Moving-average cost.

roselocust224

Hello,

When attempting to access the Study Guide/Workbook to AccompanyManagerial Accounting (1st edition), I need assistance. In thet-tables, h. is showing to be $46,700. However when I read h. atthe top for given data, it reads "completed all jobs but one; thejob cost sheet for this job shows $2100 for direct materials $2000for direct labor $4100 applied overhead". Can you please help me tounderstand where the $46700 is coming from? Is there a formula? Iam trying to complete the work in process inventory and finishedgoods inventory t-tables.

Thank you in advance for your assistance.

Question:

Study Guide/Workbook to accompany Managerial Accounting (1stEdition)

Chapter 2, Problem 5PSA

Problem

Recording Manufacturing Costs and AnalyzingManufacturing Overhead

Christopherâs Custom Cabinet Company uses a job order costingsystem with overhead applied as a percentage of direct labor costs.Inventory balances at the beginning of 2009 follow:

Raw materials inventory	$15,000
Work in process inventory	5,000
Finished goods inventory	20,000

The following transactions occurred during January:

(a) Purchased materials on account for $26,000.

(b) Issued materials to production totaling $22,000, 90percent of which was traced to specific jobs and the remaindertreated as indirect materials.

$10,000 for assembly workers

3,000 for factory supervision

1,000 for administrative personnel

1,500 for sales commissions

(d) Recorded depreciation: $6,000 for machines, $1,000for office copier.

(e) Had $2,000 in insurance expire, allocated equallybetween manufacturing and administrative expenses.

(f) Paid $6,500 in other factory costs in cash.

(g) Applied manufacturing overhead at a rate of 200percent of direct labor cost.

(h) Completed all jobs but one; the job cost sheet forthis job shows $2,100 for direct materials, $2,000 for directlabor, and $4,000 for applied overhead.

(i) Sold jobs costing $50,000; the company usescost-plus pricing with a markup of 30 percent.

Required:

1.Set up T-accounts, record the beginningbalances, post the January transactions, and compute the finalbalance for the following accounts:

Raw Materials Inventory

Work in Process Inventory

Finished Goods Inventory

Cost of Goods Sold

Manufacturing Overhead

Selling and Administrative Expenses

Sales Revenue

Other accounts (Cash, Payables, etc.)

2. Determine how much gross profit the companywould report during the month of January beforeany adjustment is made for the overhead balance.

3. Determine the amount of overâor underappliedoverhead.

4. Compute adjusted gross profit assuming thatany overâor underapplied overhead balance is adjusted directly toCost of Goods Sold.

Step-by-step solution

Step 1 of 1

Req. 1

Raw Materials Inventory		Work in Process Inventory		Finished Goods Inventory
1/1 15,000	b. 22,000	1/1 5,000	h. 46,700	1/1 20,000	i. 50,000
a. 26,000		b. 19,800		h. 46,700
Bal. 19,000		c. 10,000		Bal. 16,700
		g. 20,000
		Bal. 8,100

Cost of Goods Sold	Manufacturing Overhead		Selling and Administrative Expenses
i. 50,000	b. 2,200	g. 20,000	c. 2,500
	c. 3,000		d. 1,000
	d. 6,000		e. 1,000
	e. 1,000		Bal. 4,500
	f. 6,500
		Bal. 1,300 Overapplied

Sales Revenue		Other Accounts (Cash, Payables, etc.)
	i. 65,000	i. 65,000	a. 26,000
			c. 15,500
			d. 7,000
			e. 2,000
			f. 6,500
		Bal. 8,000

Supporting Calculations:

b. Direct Materials $22,000 x 90% = $19,800;

Indirect Materials $22,000 x 10% =$2,200

c. Selling and administrative salaries = $1,000 + $1,500 =$2,500

g. Applied manufacturing overhead = $10,000 X 200% = $20,000

h. Ending Balance in WIP = $2,100 + $2,000 + $4,000 = $8,100

Cost of Goods Manufactured = $5,000 +$19,800 + $10,000 + $20,000 - $8,100 =

$46,700

i. Sales Revenue = $50,000 X 1.3 = $65,000

Req. 2

Unadjusted gross profit = $65,000 - $50,000 = $15,000

Req. 3

Manufacturing overhead is $1,300 overapplied.

Req. 4

Adjusted gross profit = $65,000 â ($50,000 - $1,300) =$16,300

Comment

1. How should the balances of Progress Billings and Constructionin Progress be shown at reporting dates prior to completion of along-term contract

a. Progress billings as income, construciton in progress asinventory

b. Net , as income from construction if credit balance, and lossfrom construction if debit balance

c. Progress Billings as deferred income, Construction inProgress as a current asset

d. Net, as a current asset if debit balance and currentliability if credit balance

3. the competed-contract method of accounting for long-termconstruction-type contracts is preferable when

a. a contractor is involved in numerous projects

b. the contracts are of a relatively long duration

c. estimates of costs to complete and extent of progress towardcompletion are reasonably dependable

d. there are inherent uncertainties in the contract beyondnormal business risks

4. C & J Construction has consistently used the percentageof completion method of recognizing income. Last year C & Jstarted work on a $4,500,000 constuction contract, which wascompleted this year, the accounting records desclosed the followingdata for the last year

Progress billings - $1,650,000

Costs incurred - 1,350,000

Collections - 1,050,000

Estimated cost to complete - 2,700,000

How much income should C & J have recognized on thiscontract last year?

a. 105,000

b. 150,000

c. 300,000

d. 350,000

6. The use of the gross profit assumes

a. the amount of gross profit is the same as in prior years

b. sales and cost of goods sold have not changed from previousyears

c. inventory values have not increased from previous years

d. the relationship between selling price and cost of goods soldis similar to prior years

7. the gross profit method of inventory valuation is not validwhen

a. there is substantial increase in the quantity of inventoryduring the year

b. there is substantial increase in the cost of inventory duringthe year

c. the gross margin percentage changes significantly during theyear

d. all ending inventory is destroyed by dire before it can becounted

8. When the current year's ending inventory amount isoverstated,

a. the current year's cost of goods sold is overstated

b. the current year's total assets are understated

c. the current year's net income is overstated

d. the next year's income is overstated

9. If the ending inventory balance is understated, net income ofthe same period

a. will be overstated

b. will be understated

c. will be unaffected

d. cannot be determined from the above information

10. An overstatement of ending inventory in Period 1 wouldresult in income of Period 2 being

a. overstated

b. understated

c. correctly stated

d. the answer cannot be determined from the informationgiven

11. what is the maximum amount at which inventory can be valuedwhen the goods have experienced a permanent decline in value

a. historical cost

b. sales price

c. net realizable value

d. net realizable value reduced by a normal profit margin

12. Net realizable value can be defined as

a. selling price

b. selling price less costs to complete and sell

c. selling price plus costs to complete and sell

d. acquisition cost plus costs to complete and sell

13. Miller company needs an estimate of its ending inventorybalance. The following information is available

Cost Retail

sales revenue - 180,000

beginning inventory - 35,000 62,000

net purchases - 100,000 135,000

gross margin percentage - 30%

Given this information, when using the gross margin estimationmethod, ending inventory is approx

a. 1,000

b. 9,000

c. 19,000

d. 11,650

14. Which of the following would not be reported asinventory?

a. land acquired for resale by a real estate firm

b. stocks and bonds held for resale by a brokerage firm

c. partially completed goods held by a manufacturing company

d. machinery acquired by a manufacturing company for use in theproduction process

15. Cost of goods sold is equal to

a. the cost of inventory on hand at the end of a period plus netpurchases minus the cost of inventory on hand at the beginning

b. the cost of inventory on hand at the beginning of a periodminus net purchases plus the cost of inventory on hand at the endof a period

c. the cost of inventory on hand at the beginning of a periodplus net sales minus the cost of inventory on hand at the end of aperiod

d. the cost of inventory on hand at the beginning of a periodplus net purchases minus the cost of inventory on hand at the endof a period

17. In a period of falling prices, the use of which of thefolliwng inventory cost flow methods would typically result inhighest cost of goods sold?

a. FIFO

b. LIFO

c. Weighted average cost

d. Specific identification

18. In a period of rising prices, the inventory cost allocationmethod that tends to result in the lowest reported net incomeis

a. LIFO

b. FIFO

c. Moving average

d. Weighted average

19. The LIFO inventory cost flow method may be applied to whichof the following inventory systems?

Periodic Perpetual

a. no no

b. no yes

c. yes yes

d. yes no

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ACC 100 Lecture Notes - Lecture 5: Gross Margin, Accounts Payable, Current Asset

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