This case is due on October $4$th by $11$:$59$pm and should be completed in groups of $3$ to $4$ students.

Responses should be typed and also be consistent with the questions and instructions below.

Part $1$:

Target and Kohls both provide tables in their $10-$Ks illustrating how they classify costs between $$Cost of Sales$$ and $$Selling$,$ General and Administrative Expenses$.$ Use the $10-$K of Target $($Note $4,$ specifically$)$ with a filing date of March $13,2024,$ and the $10-$K of Kohl$$s $($Note $1[$p$.47],$ specifically$)$ with a filing date of March $21,2024,$ to answer the questions below.

a$)$ Target and Kohls differ in how they classify freight expenses associated with moving

merchandise between their distribution centers and their retail stores. Whose classification do you believe is more consistent with U$.$S$.$ GAAP? Why?

b$)$ Target and Kohls differ in how they classify compensation and benefits costs associated with their distribution centers. Whose classification do you believe is more consistent with US$.$ GAAP? Why?

c$)$ How do the classifications discussed in $($a$)$ and $($b$)$ above affect Target$$s gross margins as compared to Kohl$$s gross margins?

d$)$ Both companies classify shipping expenses related to customer$/$guest sales $($including online or digital sales$)$ as $$Cost of Sales$.$ Do you believe this is consistent with U$.$S$.$ GAAP? Why or why not? What factors or accounting principles should you consider when determining whether you should classify these expenses as Cost of Sales vs$.$ SG&A$?$

e$)$ Consistent with the information in parts $($a$)$ and $($b$)$ above, both companies state at the bottom of their COGS$/$SG&A categorization tables that $$The classification of these expenses varies across the retail industry.$$ What implication$($s$)$ about financial reporting can you draw from this statement?

For this portion of the case you will be graded on your answers and how well they are justified $($including the clarity of your justifications$).$ You should refer to the Codification in some of your answers. Other resources you might use include your textbook and the PWC Inventory

Part $2$:

Husker Rebar Co$.,$ a steel manufacturing company that produces reinforcing bar $($or rebar$)$ has hired you as a consultant. They are seeking your opinion on how to classify certain warehouse costs. Husker Rebar Co$.$ has six manufacturing plants that produce rebar. The production lines at the plants take scrap metal, melt it down, and form it into steel bars. After the steel bars are cut into standard lengths by a flying shear saw, the bars are moved into cooling beds located in warehouses that are connected to the end of each plant. There, the reinforcing bars cool, are bundled together, and await shipment. The rebar is shipped directly from the warehouses to customers. To date, management has included all costs associated with the warehouse $($rent$,$ utilities, warehouse employee wages, etc.$)$ as inventory costs $($i$.$e$.,$ product costs$)$ that are expensed through Cost of Goods Sold. In an attempt to increase their gross margins going forward, they are hoping to classify some $($or all$)$ of the warehouse costs as Selling, General and Administrative Costs. They have asked you to evaluate whether it would be acceptable under U$.$S$.$ GAAP to classify some or all of the warehouse costs as Selling, General and Administrative Costs. Your job is to provide a written response and justification to Husker Rebar Co$.$This section of the case should be prepared in a professional manner, as if you were submitting an official document to Husker Rebar Co$.$