Problem 10-21 Product versus general, selling, and administrative costs The foll

Question

Problem 10-21 Product versus general, selling, and administrative costs The following transactions pertain to 2012, the first year operations of Hall Company. All inven- tory was started and completed during 2012. Assume that all transactions are cash transactions. 1. Acquired $4,000 cash by issuing common stock. 2. Paid $720 for materials used to produce inventory. 3. Paid $1,800 to production workers. 4. Paid $540 rental fee for production equipment. 5. Paid $180 to administrative employees. 6. Paid $144 rental fee for administrative office equipment. 7. Produced 300 units of inventory of which 200 units were sold at a price of $12 each.

Explanation / Answer

ANSWER The difference between production costs and general, selling and administrative costs is that production costs accumulate in the inventory account and are expensed at the point of sale in the cost of goods account. General, selling and administrative costs are expensed in the period they are incurred (Edmonds, McNair, Olds, & Tsay, 2010). To show my work, the sales revenue (2,400) is what was gained from the 200 units of inventory that was sold. The COGS is how much it cost to make the units in the inventory. 200 units x $10.2 is the cost of goods sold. I came up with 10.2 by adding the production expenses (720 + 1,800 + 540 = 3,060) and then taking the total (3,060) and dividing it by the total number of units produced (300) so, 3060/300 = 10.2. I came up with a net income of $36 by taking my gross margin of 360 and subtracting the G, S, & A expenses (324). So, 360-324 = 36. The $180 paid to admin employees and the $144 for rental admin equipment equals 324. I got my cash balance of 1,376 by taking the amount of cash that was acquired by the common stock (2,360) and subtracting all expenses. My finished goods inventory amount was produced by adding inventory subtracted by the cost of goods sold. Inflow from revenue is the amount made from revenue. Outflow for inventory is the amount it cost to make all units. $180 was the only transaction that involved admin employees

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.