BUS 294 Assignment on Cost Terms and Classifications

BUSI 294Assignment on Cost Terms and ClassificationsDelta Mountain Supplies has been in business for three months. The company was formed by twooutdoor enthusiasts to produce high quality sleeping bags, which can used in all kinds of weatherconditions. The owners of the company were well skilled in production and had developed an excellentrelationship with a boutique store that specializes in selling outdoor equipment. The administrationwork and the accounting have been managed by the brother of one of the owner’s. The brother had abusiness degree but no special training in accounting.The owners had just received the income statement for the latest quarter and were somewhat dismayedby the results. The company had almost reached its productive capacity for producing sleeping bags andmost of them had been sold. Still, the income statement, presented in exhibit one, showed an operatingloss for the quarter.Believing something was not correct, the owners have hired you to review the accounting informationand to report back to them.Exhibit OneDelta Mountain SuppliesIncome StatementFor the Quarter ended, December 31stSales (6,000 sleeping bags)Operating expenses:Selling and administrative salariesTravel for sales purposesAdvertisingIndirect labour costsRaw materials purchasedPlant suppliesDirect labour costPlant maintenanceDepreciation, office equipmentRent (90% for the plant, 10% for sales space)Insurance (Plant only)Depreciation, Plant equipmentUtilities (80% plant, 20% for sales operations)Total operating expensesOperating loss$750,000$63,00045,00098,00097,000225,0005,00070,00038,00013,00050,0006,00060,00032,000802,000$(52,000)During the quarter, the company completed 8,000 sleeping bags. The owners completed a physicalinventory count and valuation on March 31st. The opening and closing inventory values are as follows:Raw materials inventoryWork-in-process inventoryFinished goods inventoryOctober 1st$0$0$0December 31st$30,000$24,000?Required:1. Describe two conceptual errors that the “accountant” made in preparing the income statementshown in exhibit one2. Prepare a schedule of the cost of goods manufactured for the quarter ending December 31 st.3. Prepare a corrected income statement for the quarter.