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Unformatted text preview: Explain your answer. After taking the course of the Legal Environment here at Kaplan, I must say no the insurance does not owe Medical Technology $227,000. I think it all boils down to what the insurance contract says and how cost is defined in that insurance contract. Many contracts regardless of what they are for, limits the reimbursement for losses of product to the costs that would most likely be considered product costs. Therefore, direct labor, direct material, and manufacturing overhead are product costs. Meaning to me, the $227,000 that the Medical Technology Company is seeking is an over-estimated which includes the selling and administrative expenses and all of the product costs. However, if I had to put a number on what the insurance contract is liable it would be $136,000 that is the cost connected with the ending finished goods inventory. Reference Garrison, R. Managerial Accounting, 12th Edition. (p42 Irwin/McGraw-Hill,...
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- Spring '09
- Balance Sheet, Medical Technology