# Assignment 2: Calculating Inventory

Pages: 4 (554 words) Published: March 23, 2013
Assignment 2: Calculating Inventory
Finland Upholstery Inc.
Oscar L. Galvan
Argosy University

The firm's selling and administrative expenses are operating expenses; therefore they are treated as Period Cost rather that Product Cost. This type of cost is unrelated to manufacturing overhead and cost of goods sold.| Manufacturing Overhead:Manufacturing overhead includes all costs of manufacturing such as indirect material, indirect labor, property taxes, maintenance and repairs, insurance etc. It excludes the direct material and direct labor. The selling and administrative expenses will not be reported in the manufacturing overhead since they are not incurred for the production of the goods.| Cost of Goods Sold:|

Cost of goods sold is a cost incurred to obtain the raw material for the production and for producing the products that are sold to the consumers. Cost of goods sold: (Beginning merchandise inventory + inventory purchases - ending inventory.) Since the selling and administrative expenses are not incurred for obtaining the raw material as well as manufacturing the product they will not be reported in the cost of goods sold. Selling and Administrative Expenses:

The selling and administrative expenses are incurred for delivering the goods to the consumers, and also for the advertising of the products. The following are examples; management expenses, salesman salaries, clerical expenses and advertisement expenses.

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1. Calculate the company’s predetermined overhead application rate.| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Budgeted Overhead| 5,460,000 | | | | | | | | | | | | | | | | Budgeted Direct Labor| 4,200,000 | | | | | | | | | | | | | | | | Predetermined Overhead Rate| 130%| | | | | | | | | | | | | | | |...