Case 2 - Explain your answer. After taking the course of...

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Case 2-30 Medical Technology, Inc. Question 1 What conceptual errors, if any, were made in preparing the income statement of page 89 in our textbook (Brewer, Garrison, Noreen, 2008). I think, the first thing to point out is that there is no difference made between period expense or cost which is all the costs that are not product costs and product costs which is all costs acquiring or making the product on the Medical Technology income statement (Brewer, Garrison, and Noreen, 2008. p 42). I mean product costs such as direct labor, direct materials, and manufacturing overhead which should be assigned to inventory accounts and past through to the income statement as the cost of goods sold, mainly only when the finished product is sold. The other point is since there were ending inventories amounts, some not all of the product costs should have appeared on the balance sheet as assets than on the Medical Technology income statement as expenses. Question 4 Do you agree that the insurance company owes Medical Technology, Inc, $227,000?
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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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This note was uploaded on 04/20/2009 for the course MANAGEMENT GB503 taught by Professor Johnyelvington during the Spring '09 term at Kaplan University.

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Case 2 - Explain your answer. After taking the course of...

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