Module H Acct 403
When errors are difficult to predict.
When misstatements are difficult to define.
When large, unusual, or nonrecurring transactions require judgment.
When transactions are high volume and recurring.
The following expenditures were incurred during the year:
a. Paid $4,000 for an overhaul of an automobile engine.
b. Paid$20,000 to add capacity to a cellular phone company’s wireless network.
c. Paid $200 for routine maintenance of a manufacturing machine.
d. Paid$10,000 to remodel an office building.
e. Paid $300 for ordinary repairs
If management improperly classified these expenditures, what would be the impact on the financial statements?
Jackson Company produces plastic that is used for injection-molding applications such as gears for small motors. In 2016, the fi rst year of operations, Jackson produced 4,000 tons of plastic and sold 3,500 tons. In 2017, the production and sales results were exactly reversed. In each year, the selling price per ton was $2,000, variable manufacturing costs were 15% of the sales price of units produced, variable selling expenses were 10% of the selling price of units sold, fixed manufacturing costs were$2,800,000, and fixed administrative expenses were $500,000.
Instructions (c) Reconcile the differences each year in net income under the two costing approaches.