Question 1

Current Attempt in Progress After graduating, you might decide to start a small business. As discussed in this chapter, owners of any business need to know how to calculate the cost of their products. In fact, many small businesses fail because they don't accurately calculate their product costs, so they don't know if they are making a prot or losing moneyuntil it's too late. Suppose that you decide to start a landscape business. You use an old pickup truck that you've fully paid for. You store the truck and other equipment in your parents' barn, and you store trees and shrubs on their land. Your parents will not charge you for the use of these facilities for the first two yea rs, but beginning in the third year they will charge a reasonable rent. Your mother helps you by answering phone calls and providing customers with information. She doesn't charge you for this service, but she plans on doing it for only your rst two years in business. In pricing your services, should you include charges for the truck, the barn, the land, and your mother's services when calculating your product cost? The basic arguments for and against are as follows. YES: If you don't include charges for these costs, your costs are understated and your protability is overstated. NO: At this point, you are not actually incurring costs related to these activities; therefore, you shouldn't record charges. Ajob order cost accounting system is fully integrated into the general ledger of a company. Identify the major general ledger accounts used in a job order cost system. Explain how manufacturing costs ow through these accounts so that inventories may be costed and income determined when goods are sold. David Skaros has recently been promoted to production manager. He has just started to receive various managerial reports, including the production cost report that you prepared. It showed that his department had 2,000 equivalent units in ending inventory. His department has had a history of not keeping enough inventory on hand to meet demand. He has come to you, very angry, and wants to know why you gave him credit for only 2,000 units when he knows he had at least twice that many on hand. Explain to him why his production cost report showed only 2,000 equivalent units in ending inventory. Write an informal memo. Be kind and explain very clearly why he is mistaken. The Coca-Cola Company hardly needs an introduction. A line taken from the cover of a recent annual report says it all: Ifyou measured time in servings of Coca-Cola, "a billion Coca-Colals ago was yesterday morning.\" On average. every US. citizen drinks 363 8- ounce servings of Coca-Cola products each year. Coca-Cole's primary line of business is the making and selling of syrup to bottlers. These bottlers then sell the nished bottles and cans of Coca-Cola to retailers. In the annual report of Coca-Cola, the following information was provided. THE COCA-COLA COMPANY Management Discussion Our gross margin declined to 61 percent this year from 62 percent in the prior year. primarily due to costs for materials such as sweeteners and packaging. The increases [in selling expenses] in the last two years were primarily due to higher marketing expenditures in support of our Compa ny's volume growth. We measure our sales volume in two ways: (1) gallon shipments of concentrates and syrups and (2) unit cases of finished product (bottles and cans of Coke sold by bottlers). (c) Which of the two measures cited for measuring volume represents the activity index as defined in this chapter? Why might Coca-cola use two different measures?Brislin Company has four operating divisions. During the rst quarter of 2022, the company reported aggregate income from operations of $213,000 and the following divisional results. Division | II III IV Sales $250,000 $200,000 $500,000 $450,000 Cost of goods sold 200,000 192,000 300,000 250,000 Selling and administrative expenses 75,000 60,000 60,000 50,000 Income (loss) from operations $ (25,000) $62,000} $140,000 $150,000 Analysis reveals the following percentages of variable costs in each division. | II III IV Cost of goods sold 70 96 90 9'6 80 % 75 % Selling and administrative expenses 40 60 50 60 Discontinuance of any division would save 50% of the xed costs and expenses for that division. Top management is very concerned about the unprotable divisions (I and II). Consensus is that one or both of the divisions should be discontinued. id) Reconcile the total income from operations ($213,000) with the total income from operations without Division