Berry Company is an architectural firm located in Detroit, Michigan. The company works with small and medium-size construction businesses to prepare building plans according to client contract. Berry employs 10 professionals and 5 staff. The following data are provided for last year:
Number of designs completed and sold ..........700
Beginning inventory of direct materials .........$20,000
Beginning inventory of designs in process ....... $60,000
Ending inventory of direct materials ..............$0
Ending inventory of designs in process ........$100,000
Purchases, direct materials ...............$40,000
Direct labor ......................$800,000
Manufacturing overhead ................$100,000
Administrative expense ...............$150,000
Selling expense ..................$60,000
Required:
1. Calculate the cost of services sold.
2. Assume that the average fee for a design is $2,100. Prepare an income statement for
Berry Company.
3. Refer to the cost of services sold (calculated in Requirement 1). What is the dominant cost? Will this always be true of service organizations? If not, provide an example of an exception.
4. Why does Berry Company show zero inventory of finished plans? What change(s) in the company could result in a positive finished goods inventory?