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ATC $1-2($Algo$)$ Group Assignment: Product versus upstream and downstream costs

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$[$The following information applies to the questions displayed below.$]$

Victor Holt, the accounting manager of Franklin, Incorporated, gathered the following information for year $4.$ Some of it can be used to construct an income statement for year $4.$ Ignore items that do not appear on an income statement. Some computation may be required. For example, the cost of manufacturing equipment would not appear on the income statement. However, the cost of manufacturing equipment is needed to compute the amount of depreciation. All units of product were started and completed in year $4.$

Issued $$861,000$ of common stock.

Paid engineers in the product design department $$11,000$ for salaries that were accrued at the end of the previous year.

Incurred advertising expenses of $$66,000.$

Paid $$730,000$ for materials used to manufacture the company$$s product.

Incurred utility costs of $$180,000.$ These costs were allocated to different departments on the basis of square footage of floor space. Mr$.$ Holt identified three departments and determined the square footage of floor space for each department to be as shown in the following table.

Department Square Footage

Research and development $10,000$

Manufacturing $60,000$

Selling and administrative $30,000$

Total $100,000$

Paid $$821,000$ for wages of production workers.

Paid cash of $$640,000$ for salaries of administrative personnel. There was $$16,600$ of accrued salaries owed to administrative personnel at the end of year $4.$ There was no beginning balance in the Salaries Payable account for administrative personnel.

Purchased manufacturing equipment two years ago at a cost of $$10,600,000.$ The equipment had an eight$-$year useful life and a $$2,120,000$ salvage value.

Paid $$350,000$ cash to engineers in the product design department.

Paid a $$213,000$ cash dividend to owners.

Paid $$88,000$ to set up manufacturing equipment for production.

Paid a one$-$time $$106,000$ restructuring cost to redesign the production process to implement a just$-$in$-$time inventory system.

Prepaid the premium on an insurance policy covering nonmanufacturing employees. The policy cost $$64,800$ and had a one$-$year term with an effective starting date of May $1.$ Four employees work in the research and development department and eight employees work in the selling and administrative department. Assume a December $31$ closing date.

Made $70,175$ units of product and sold $63,975$ units at a price of $$80$ each.

ATC $1-2($Algo$)$ Part a

Required

a$-1.$ Identify the items that are classified as product costs and determine the amount of cost of goods sold reported on the year $4$ income statement.

a$-2.$ Identify the items that are classified as upstream costs and determine the amount of upstream cost expensed on the year $4$ income statement.

a$-3.$ Identify the items that are classified as downstream costs and determine the amount of downstream cost expensed on the year $4$ income statement.

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ATC $1-2($Algo$)$ Group Assignment: Product versus upstream and downstream costs

$[$The following information applies to the questions displayed below.$]$

Victor Holt, the accounting manager of Franklin, Incorporated, gathered the following information for year $4.$ Some of it

can be used to construct an income statement for year $4.$ Ignore items that do not appear on an income statement. Some

computation may be required. For example, the cost of manufacturing equipment would not appear on the income

statement. However, the cost of manufacturing equipment is needed to compute the amount of depreciation. All units of

product were started and completed in year $4.$

Issued $$861,000$ of common stock.

Paid engineers in the product design department $$11,000$ for salaries that were accrued at the end of the previous year.

Incurred advertising expenses of $$66,000.$

Paid $$730,000$ for materials used to manufacture the company's product.

Incurred utility costs of $$180,000.$ These costs were allocated to different departments on the basis of square footage of

floor space. Mr$.$ Holt identified three departments and determined the square footage of floor space for each

department to be as shown in the following table.

Departnent

Research and development

Manufacturing

Selling and administrative

Total

Paid $$821,000$ for wages of production workers.

Paid cash of $$640,000$ for salaries of administrative personnel. There was $$16,600$ of accrued