317 lo3 list three reasons why a merchandising firm

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3.17 LO3. List three reasons why a merchandising firm holds inventory. 3.18 LO3. Should a retail firm include the cost of receiv- ing and stocking goods when computing inventory values? 3.19 LO3 (Advanced). Many merchandising firms charge the entire amount of transportation costs to cost of goods sold. Other merchandising firms perform a D ISCUSSION Q UESTIONS To download more slides, ebooks, solution manual, and test bank, visit
Exercises  99 E XERCISES 3.28 Product versus period cost (LO1). The following are some of the costs incurred by a consulting firm. Salary paid to consultants Fee for attending training seminar Salary to office administrator Corporate office rent Cost of general-purpose software Travel to client site Required: Classify each cost as a product cost (above the line for gross margin) or a period cost (below the line for gross margin). 3.29 Cost flows in a service firm (LO2). The following data pertain to Boyd Associates, a consulting company. Revenues $1,600,450 Gross margin 450,000 Profit before taxes 275,400 Required: Complete a GAAP income statement to determine (a) the firm’s cost to provide service and (b) its marketing and administration costs. 3.30 Cost flows in a service firm (LO2). The following data pertain to Skogg Consulting. Skogg provides advice on structural engineering for large projects such as stadiums and bridges. Clients seek Skogg out because it has extensive contacts and can find the person who is “right” for the job. This is a nontrivial task, as often fewer than 10 persons worldwide might have the required expertise. Skogg bills clients at the rate of $350 per hour plus actual expenses for travel and board. The firm draws consultants from a roster it maintains, and it pays the consultant $300 per hour. The balance of $50 goes toward administrative support. The firm expects to accumulate 9,000 consulting hours for the year and projects a profit before taxes of $230,000. Required: Complete a GAAP income statement to determine (a) the firm’s cost to provide service and (b) its marketing and administration costs. 3.31 Cost flows in a service firm, cost classifications (LO1, LO2). Brad Timberlake is known throughout the world for his insights on effective and efficient time management. Cur- rently, Brad offers 35 daylong seminars each year at locations throughout North America, year-end allocation to distribute the cost between the inventory and cost of goods sold. How might firms justify not tracing transportation costs to individual products and flowing these costs through the inven- tory accounts? 3.20 LO4 (Advanced). GAAP excludes most research and development costs from its definition of inventori- able costs. Why do you believe GAAP mandates such a treatment? 3.21 LO1, LO4 (Advanced). Do you expect reported in- come and operating cash flows for a service firm to be close in magnitude? Would your answer differ for a manufacturing firm? Why?

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