Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period. Income Statement: The income statement is that financial statement which shows the net income (or loss) of the Company. In the income statement, to calculate the net income, all expenses incurred by the Company are deducted from the total revenue of the Company. Gross Profit: It is that profit which is computed by deducting Cost of goods sold from the net sales (Sales after deducting Sales Return and allowances, Sales Discounts). To prepare: The correct income statement for 2 years.

Question

Chalmers Corporation operates in multiple areas of the globe, and relatively large price changes are common. Presently, the company sells 110,200 units for $50 per unit. The variable production costs are $20, and fixed costs amount to $2,079,500. Production engineers have advised management that they expect unit labor costs to rise by 10 percent and unit materials costs to rise by 15 percent in the coming year. Of the $20 variable costs, 25 percent are from labor and 50 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 12 percent. It is also expected that fixed costs will rise by 10 percent as a result of increased taxes and other miscellaneous fixed charges. The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 8 percent during the year. Required: Compute the volume in units and the dollar sales level…

Answer 1

Question

Chapter 6, Problem 6.10E

(a)

To determine

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

Income Statement: The income statement is that financial statement which shows the net income (or loss) of the Company. In the income statement, to calculate the net income, all expenses incurred by the Company are deducted from the total revenue of the Company.

Gross Profit: It is that profit which is computed by deducting Cost of goods sold from the net sales (Sales after deducting Sales Return and allowances, Sales Discounts).

To prepare: The correct income statement for 2 years.

(b)

To determine

To identify: The cumulative effect of the inventory error on total gross profit for the 2 years.

(c)

To determine

To prepare: A letter to explain the nature of inventory error and its effect on the financial statements of the company.

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Chalmers Corporation operates in multiple areas of the globe, and relatively large price changes are common. Presently, the company sells 110,200 units for $50 per unit. The variable production costs are $20, and fixed costs amount to $2,079,500. Production engineers have advised management that they expect unit labor costs to rise by 10 percent and unit materials costs to rise by 15 percent in the coming year. Of the $20 variable costs, 25 percent are from labor and 50 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 12 percent. It is also expected that fixed costs will rise by 10 percent as a result of increased taxes and other miscellaneous fixed charges. The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 8 percent during the year. Required: Compute the volume in units and the dollar sales level…

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Answer 2

Question

Chapter 6, Problem 6.10E

(a)

To determine

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

Income Statement: The income statement is that financial statement which shows the net income (or loss) of the Company. In the income statement, to calculate the net income, all expenses incurred by the Company are deducted from the total revenue of the Company.

Gross Profit: It is that profit which is computed by deducting Cost of goods sold from the net sales (Sales after deducting Sales Return and allowances, Sales Discounts).

To prepare: The correct income statement for 2 years.

(b)

To determine

To identify: The cumulative effect of the inventory error on total gross profit for the 2 years.

(c)

To determine

To prepare: A letter to explain the nature of inventory error and its effect on the financial statements of the company.

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Answer 3

Question

Chapter 6, Problem 6.10E

(a)

To determine

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

Income Statement: The income statement is that financial statement which shows the net income (or loss) of the Company. In the income statement, to calculate the net income, all expenses incurred by the Company are deducted from the total revenue of the Company.

Gross Profit: It is that profit which is computed by deducting Cost of goods sold from the net sales (Sales after deducting Sales Return and allowances, Sales Discounts).

To prepare: The correct income statement for 2 years.

(b)

To determine

To identify: The cumulative effect of the inventory error on total gross profit for the 2 years.

(c)

To determine

To prepare: A letter to explain the nature of inventory error and its effect on the financial statements of the company.

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Answer 4

Question

Chapter 6, Problem 6.10E

(a)

To determine

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

Income Statement: The income statement is that financial statement which shows the net income (or loss) of the Company. In the income statement, to calculate the net income, all expenses incurred by the Company are deducted from the total revenue of the Company.

Gross Profit: It is that profit which is computed by deducting Cost of goods sold from the net sales (Sales after deducting Sales Return and allowances, Sales Discounts).

To prepare: The correct income statement for 2 years.

(b)

To determine

To identify: The cumulative effect of the inventory error on total gross profit for the 2 years.

(c)

To determine

To prepare: A letter to explain the nature of inventory error and its effect on the financial statements of the company.

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Answer 5

Chapter 6, Problem 6.10E

(a)

To determine

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

Income Statement: The income statement is that financial statement which shows the net income (or loss) of the Company. In the income statement, to calculate the net income, all expenses incurred by the Company are deducted from the total revenue of the Company.

Gross Profit: It is that profit which is computed by deducting Cost of goods sold from the net sales (Sales after deducting Sales Return and allowances, Sales Discounts).

To prepare: The correct income statement for 2 years.

(b)

To determine

To identify: The cumulative effect of the inventory error on total gross profit for the 2 years.

(c)

To determine

To prepare: A letter to explain the nature of inventory error and its effect on the financial statements of the company.

Answer 6

Chapter 6, Problem 6.10E

(a)

To determine

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

Income Statement: The income statement is that financial statement which shows the net income (or loss) of the Company. In the income statement, to calculate the net income, all expenses incurred by the Company are deducted from the total revenue of the Company.

Gross Profit: It is that profit which is computed by deducting Cost of goods sold from the net sales (Sales after deducting Sales Return and allowances, Sales Discounts).

To prepare: The correct income statement for 2 years.

Answer 7

Chapter 6, Problem 6.10E

(a)

To determine

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

Income Statement: The income statement is that financial statement which shows the net income (or loss) of the Company. In the income statement, to calculate the net income, all expenses incurred by the Company are deducted from the total revenue of the Company.

Gross Profit: It is that profit which is computed by deducting Cost of goods sold from the net sales (Sales after deducting Sales Return and allowances, Sales Discounts).

To prepare: The correct income statement for 2 years.

Answer 8

(b)

To determine

To identify: The cumulative effect of the inventory error on total gross profit for the 2 years.

Answer 9

(b)

To determine

To identify: The cumulative effect of the inventory error on total gross profit for the 2 years.

Answer 10

(c)

To determine

To prepare: A letter to explain the nature of inventory error and its effect on the financial statements of the company.

Answer 11

(c)

To determine

To prepare: A letter to explain the nature of inventory error and its effect on the financial statements of the company.

Answer 12

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Ch. 6 - Prob. 1Q Ch. 6 - Prob. 2Q Ch. 6 - Prob. 3Q Ch. 6 - Prob. 4Q Ch. 6 - Prob. 5Q Ch. 6 - 6. Explain the difference between the terms FOB...Ch. 6 - Prob. 7Q Ch. 6 - Prob. 8Q Ch. 6 - 9. “The selection of an inventory cost flow method...Ch. 6 - Prob. 10Q

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To identify: The cumulative effect of the inventory error on total gross profit for the 2 years.

To prepare: A letter to explain the nature of inventory error and its effect on the financial statements of the company.

Chapter 6 Solutions