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SJSU Determination of The Cost of Goods Manufactured Questions

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1. The determination of the cost of goods manufactured (COGM) involves the following factors:

(A) beginning work in process inventory,

(B) total manufacturing costs, and

(C) ending work in process inventory.

Identify the meaning of x in the following formulas below (a) and (b).

In addition please define “Cost of Goods Manufactured(COGM)” in your own words and how this COGM figure would be different from COGS (Cost of Goods Sold) you had learned from financial accounting course earlier:

(a)

A + B = x

(b)

A + B – C = x


2.

Topic:Product cost vs. Period cost:

During our 1a and 1b financial accounting courses, we learned how retailers, such as Wal-Mart, account for the cost of equipment that lasts more than one year. Recall that the equipment was recorded as an asset when purchased, and then it was depreciated over its expected useful life.

The depreciation charge reduced the company’s assets and increased its expenses. This approach was justified under the matching principle, which seeks to recognize costs as expenses in the same period that the cost (resource) is used to generate revenue.

As we discussed in this week 1 class session, in managerial /cost accounting courses, the focus will often be on manufacturing entities, so please consider the following case scenario:

Black & Decker (B&D) manufactures cordless hedge trimmers that it sells to Wal-Mart. In order to produce that, B&D had to purchase a robotic machine that it can be used to produce 1 million hedge trimmers.

Do you think B&D should account for depreciation on its manufacturing equipment the same way Wal-Mart accounts for depreciation on its registers at the checkout counters?

If not, how should B&D account for its depreciation? Please remember the matching principle when thinking of your answer.


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