Task-1: Tom, the manager of ABC company, has reviewed a draft of his financial statements. Tom...

 

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Task-1: Tom, the manager of ABC company, has reviewed a draft of his financial statements. Tom receives a year-end bonus of 20% of the company income. The income statement was provided by the factory accountant was diappointing for Tom. After reviewing the numbers, Tom that the accountant has to work again on that numbers which are in this draft Income Statement. Tom insisted that if he did not see a better income number he will fire the accountant. ABC company classifies all costs directly related to the manufacturing of its product as product costs. These costs are inventoried and later expensed as costs of goods sold when the product is sold. All other expenses, including finished goods warehousing costs of 4,000,000 USD, are classified as period expenses. Tom had suggested that warehousing costs be included as product costs because he believes that they are belonging to product costs. The company produced 200,000 units during the period and sold 150,000 units. As the accountant worked on the numbers again, she discovered that if she included warehousing costs as product costs, she could improve operating income by 500,000 USD. She was also sure these new numbers will make Tom happy. Requirements: 1. Indicate numerically how income would be improve by 500,000 USD by classifying the preceding costs as product costs instead of period expenses. 2. Is Tom correct in his justification that costs like Warehouse costs belongs to product cost? 3. By how much will Tom profit personally if the accountant make the adjustment in requirment 1? 4. What should the factory accountant do? Task-1: Tom, the manager of ABC company, has reviewed a draft of his financial statements. Tom receives a year-end bonus of 20% of the company income. The income statement was provided by the factory accountant was diappointing for Tom. After reviewing the numbers, Tom that the accountant has to work again on that numbers which are in this draft Income Statement. Tom insisted that if he did not see a better income number he will fire the accountant. ABC company classifies all costs directly related to the manufacturing of its product as product costs. These costs are inventoried and later expensed as costs of goods sold when the product is sold. All other expenses, including finished goods warehousing costs of 4,000,000 USD, are classified as period expenses. Tom had suggested that warehousing costs be included as product costs because he believes that they are belonging to product costs. The company produced 200,000 units during the period and sold 150,000 units. As the accountant worked on the numbers again, she discovered that if she included warehousing costs as product costs, she could improve operating income by 500,000 USD. She was also sure these new numbers will make Tom happy. Requirements: 1. Indicate numerically how income would be improve by 500,000 USD by classifying the preceding costs as product costs instead of period expenses. 2. Is Tom correct in his justification that costs like Warehouse costs belongs to product cost? 3. By how much will Tom profit personally if the accountant make the adjustment in requirment 1? 4. What should the factory accountant do?

Answer rating: 100% (QA)

Answer 1 Total warehousing cost USD 4000000 total units produced 200000 Total u... View the full answer