Intermediate accounting chapter 10 problems

The objective is to identify the fundamental principles of accounting, identify and analyze business transactions, prepare financial statements, and communicate this information to users with different needs.

Intermediate accounting chapter 10 problems

During the period, the Company: A backflush system compatible with full absorption costing appears in Exhibit Note that the direct materials purchases and conversion costs are charged directly to Cost of Goods Sold. Then the costs remaining in the ending inventories are charged, or backflushed, to the RIP, Conversion Costs and Finished Goods accounts.

Intermediate Accounting Chapter 1 - ProProfs Quiz

Although this simplified system is somewhat unorthodox, the amount of cost of goods sold is exactly the same as the amount obtained in a traditional full absorption costing system. Although the accounts are different, the results are the same. A backflush system compatible with direct costing appears in Exhibit An additional account is needed for period costs, or factory expenses, since the fixed overhead costs are not charged to the inventory.

Instead, the fixed manufacturing costs are charged directly to expense. A backflush system compatible with throughput costing is presented in Exhibit In this illustration, only direct materials costs flow into cost of goods sold, while all conversion costs are charged directly to expense.

Intermediate accounting chapter 10 problems

The Conversion Costs account that appears in Exhibits and is omitted in Exhibit because no conversion costs are deferred in the inventory.

A system where none of the manufacturing costs are deferred in the inventory could be designed in a variety of ways. This is not a backflush system, since none of the costs are flushed back to inventory accounts.

Intermediate accounting 16th edition solutions chapter 8

Instead it might be referred to as a no-absorption throughput costing system since the ending materials costs are charged to expense rather than backflushed to the RIP and finished goods accounts. Summary of Key Ideas Although the concepts illustrated above are more fully developed in subsequent chapters, this four part example was presented to introduce a troublesome behavioral aspect of inventory valuation.

A key idea to grasp is that although full absorption costing satisfies the matching concept, it tends to motivate managers to produce excess inventory.

Because even though total fixed manufacturing costs are relatively constant, each unsold unit soaks up some of these fixed costs. As a result, the fixed costs associated with these units appear on the balance sheet as an asset, rather than on the income statement as an expense.

The higher the level of production, the greater the amount of fixed costs deferred in the inventory, the lower the amount of expense and the greater the amount of net income. Thus, critics contend that absorption costing rewards managers for producing excess. Direct costing, on the other hand, is neutral as far as building inventory is concerned because fixed manufacturing costs are expensed regardless of the number of units produced.Intermediate accounting 16th edition solutions chapter 8.

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CHAPTER 10 Plant Assets, Natural Resources, Study Objectives and End-of-Chapter Exercises and Problems Study ObjectiveKnowledge Comprehension Application Analysis Synthesis Research and development costs present several accounting problems.

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In general, an asset should be recorded at the fair market val.

Intermediate accounting chapter 7 cash and receivables