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Cost Classification, Inventory Computation Report

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14-3A - Assume that you must make a presentation to the marketing explaining the difference between product and period cost. Your supervisor tells you the marketing staff would also like clarification regarding prime and conversion costs and an explanation of how these terms fit with the product and period cost. You are told that many on the staff are unable to classify costs in their merchandising activities.. Write two paragraphs to your supervisor outlining your presentation to your marketing staff.

14-6A
Shown here are annual financial data at December 31, 2011, taken from two different companies.

Pinnacle Slope Board
Retail Manufacturing
Beginning inventory
Merchandise $150,000
Finished goods $300,000
Cost of purchases 250,000
Costs of goods manufactured 586,000
Ending inventory
Merchandise 100,000
Finished goods 200,000

REQUIRED

1. Compute the cost of goods sold section of the income statement at December 31, 2011, for each company. Include the proper title and format in the solution.

2. Write a memorandum to your instructor
(a) identifying the inventory accounts and
(b) describing where each is reported on the income statement and balance sheet for both companies.

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Solution Summary

Computations and a letter to the marketing team are provided for you.

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See excel attached for better formatting.

Cost Classification, Inventory Computation Report

14-3A - Assume that you must make a presentation to the marketing explaining the difference between product and period cost. Your supervisor tells you the marketing staff would also like clarification regarding prime and conversion costs and an explanation of how these terms fit with the product and period cost. You are told that many on the staff are unable to classify costs in their merchandising activities. Write two paragraphs to your supervisor outlining your presentation to your marketing staff.

Dear Marketing Team,

I understand that you would like some help classifying product and non-product (period) costs and prime versus conversion costs. I'm here to help! First, prime and conversion costs relate only to product costs. So, if you have non-product costs, you NEVER have prime or conversion costs. So, product costs are just fussier. ...

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Carol Sargent, PhD
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  • MSc, University of Virginia
  • PhD, Georgia State University
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