
1)
Introduction:
Cost of Goods Sold:
• Cost of goods manufactured is the total cost of producing goods that are later sold to realize revenues. It includes direct and indirect materials, labor and
• Cost of Goods sold is used to compute the cost of producing goods and selling goods for a particular period.
• Cost of Goods sold comprises of Cost of Materials, Labor and Overhead attributable to goods manufactured i.e. Cost of Goods Manufactured as well as selling and distribution costs such as shipping and handling expenses.
Contingent expenses and
• These are expenses and liabilities that are conditional in nature and their future occurrence is conditional on the happening or not happening of certain events.
• An example of this category of expense and liability are warranties. Warranty expenses and warranty liability refer to the costs of repairing defect products that have been sold and are in the warranty period.
• Every sold finished good comes with a warranty. A warranty can be invoked when the product is defective and there is no fault of the consumer. Warranty costs are recorded as estimates based on studies and past trends in the financial statements.
To Determine:
Why shipping, handling and warranty expenses are included in the cost of goods sold.
2)
Introduction:
Effect of costs on Profits
• Profitability analysis takes place after costs have been allocated and bifurcated into direct and indirect costs.
• Direct costs are costs directly attributable to cost of goods sold such as material, labor and overheads. Indirect costs are costs indirectly attributable to cost of goods sold such as selling and distribution expenses.
• Inclusion of items such as of shipping, handling and warranty expenses in the cost of goods sold leads to reduced profitability and has an adverse impact on ratio analysis of financial statements.
Ratio Analysis
• Ratio analysis is a study of several key metrics of a company based on the data presented in its’ financial statements with an objective to evaluate the financial health of a company.
• It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability.
• Examples of Ratios for analysis of financial statements includes Net profit Margin Ratio, Asset Turnover ratio etc.
To Determine:
Effect of inclusion of items such as of shipping, handling and warranty expenses in the cost of goods sold and analysis of financial statements.
3)
Introduction:
Cost of Goods Sold:
• Cost of goods manufactured is the total cost of producing goods that are later sold to realize revenues. It includes direct and indirect materials, labor and overhead.
• Cost of Goods sold is used to compute the cost of producing goods and selling goods for a particular period.
• Cost of Goods sold comprises of Cost of Materials, Labor and Overhead attributable to goods manufactured i.e. Cost of Goods Manufactured as well as selling and distribution costs such as shipping and handling expenses.
Contingent expenses and contingent liabilities
• These are expenses and liabilities that are conditional in nature and their future occurrence is conditional on the happening or not happening of certain events.
• An example of this category of expense and liability are warranties. Warranty expenses and warranty liability refer to the costs of repairing defect products that have been sold and are in the warranty period.
• Every sold finished good comes with a warranty. A warranty can be invoked when the product is defective and there is no fault of the consumer. Warranty costs are recorded as estimates based on studies and past trends in the financial statements.
To Determine:
If policy with respect to costs included in cost of sales have changed.

Want to see the full answer?
Check out a sample textbook solution
Chapter 20 Solutions
Connect 2-Semester Access Card for Fundamental Accounting Principles
- i need correct optionarrow_forwardMark purchased 200 shares of stock for $40 per share. During the year, he received $500 in dividends. He recently sold the stock for $55 per share. What was Mark's return on the stock? a) $3,500 b) $4,000 c) $3,900 d) $4,500arrow_forwardSummit Industries has a normal capacity of 30,000 direct labor hours. The company's variable costs are $42,000, and its fixed costs are $18,000 when running at normal capacity. What is the standard manufacturing overhead rate per unit? a) $1.50 b) $1.60 c) $2.00 d) $2.10arrow_forward
- Ivanhoe, Inc. has recently started the manufacture of Tri-Robo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a smartphone. The cost structure to manufacture 20,400 Tri-Robos is as follows. Cost Direct materials ($51 per robot) $1,040,400 Direct labor ($39 per robot) 795,600 Variable overhead ($7 per robot) 142,800 Allocated fixed overhead ($29 per robot) 591,600 Total $2,570,400 Ivanhoe is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,366,400. Following are independent assumptions. Assume that none of the fixed overhead can be avoided. However, if the robots are purchased from Tienh Inc., Ivanhoe can use the released productive resources to generate additional income of $375,000. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Direct materials Direct labor Variable overhead Fixed overhead Opportunity cost Purchase price Totals Make…arrow_forwardcorrect answer pleasearrow_forwardcost accountingarrow_forward
- Summit Holdings has $280,000 in accounts receivable that will be collected within 70 days. The company needs cash urgently and decides to factor them, receiving $260,000. Skyline Factoring Company, which took the receivables, collected $275,000 after 85 days. Find the rate of return on this investment for Skyline.arrow_forwardwhat are the variable expenses per unit?arrow_forwardprice-earning ratio accounting questionarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





