Question

Doors Unlimited Ltd. purchases units of wood frames that have manufacturers rebates from Traders Inc. The rebate requires Doors Unlimited to purchase a minimum number of units in a calendar year. The initial unit cost of each wood frame is $2.50 before any rebate. If more than 3,500 units are purchased, the rebate is $0.25 per unit for all units purchased beyond the base amount of 3,500 units. Doors Unlimited Ltd. has a June 30 fiscal year end. By June 30, 2014, Doors Unlimited had purchased 3,000 wood frames for the six-month period from January 1, 2014, to June 30, 2014. Doors Unlimited estimates that an additional 3,000 wood frames will be purchased from July 1, 2014, to December 31, 2014. Doors Unlimited management is very confident that this estimate will be confirmed by future purchases from Traders.
(a) Explain the conceptual principles involved in determining if an accrual should be made for the volume rebate from Traders. Under what circumstances would an accrual not be permissible?
(b) Calculate the amount of any rebate that Doors Unlimited should accrue at June 30, 2014, assuming the rebate cannot be cancelled by Traders.
(c) Calculate the unit cost that Doors Unlin1ited should use in the costing of wood frames using the perpetual inventory system. (Round to four decimal places.)


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  • CreatedSeptember 18, 2015
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