homework_set_2.docx - Managerial Accounting This homework...

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Managerial Accounting This homework is an individual effort. Using o r sh a r i n g a n y ma t er i a ls w i th students in other y e a rs or other M B A p r o g r a ms at Rice is conside re d a viol a tion of the Honor Code a nd will be r e por t e d to the a ppr o p r i a te a ut h orities. You may also not seek help from online sources. Homework set #2 Problem 1: Comfort Solutions Comfort Solutions sells a wide range of mattresses to consumers. For the most recent year, Comfort Solutions provides you with the following data: Beginning inventory $2,450,000 Purchases $23,125,000 Ending inventory $2,225,000 Transportation in $511,500 Comfort Solutions informs you that it has traditionally treated transportation in as a period expense. However, the firm has a new auditor this year. The auditor believes that the cost of “transportation in” should be treated as a product cost and, as such, should flow through the firm’s inventory account. Required: a. What is Comfort’s cost of goods sold under its current (traditional) system? b. Assume the auditor asks Comfort to allocate the cost of transportation in between cost of goods sold (as computed in part (a)) and ending inventory. Using this approach, what is Comfort’s cost of goods sold? Which approach, (a) or (b), do you believe is most appropriate for Comfort Solutions?

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