Forum Session 3 – Accounting for Managers (LOP1)

Heru Meireza (2140070425)

Problem 1
Suppose in its income statement for the year ended June 30, 2020, The Clorox Company reported the
following condensed data (dollars in millions).
Salaries and wages expense $ 460
Depreciation expense 90
Research and development expense $ 114
Sales revenue 5,730
Income tax expense 276
Interest expense 161
Loss on disposal of plant assets 46
Advertising expense 499
Cost of goods sold 3,104
Sales returns and allowances 280
Rent expense 105
Utilities expense 6

a) Prepare a multiple-step income statement.

The Clorox Company

Income Statement
For the Year Ended June 30, 2020
(In millions dollars)
Sales
Sales Revenue 5.730
Less : Sales Return & Allowance 280
Net Sales 5.450
Cost Of Good Sold 3.104
Gross Profit 2.346
Operating Expense
Salaries & Wages Expense 460
Utilities expense 60
Advertising expense 499
Depreciation expense 90
Research and development expense 114
Rent expens 105
Total Operating Expense 1.328
Income from Operations 1.018
Other revenue and gains

Other expenses and losses

Interest expense 161
Loss on disposal of plant assets 46
207
Income before income taxes 811
Income tax expense 276
Net Income 535
 Forum Session 3 – Accounting for Managers (LOP1)
Heru Meireza (2140070425)

b) Calculate the gross profit rate and the profit margin and explain what each means.

Gross Profit 2.346

Gross Profit Rate : 43%
Net Sales 5.450
It means Percentage amount Gross Profit 43 % of net sales

Net Income 535

Profit Margin Ratio 9,82%
Net Sales 5.450

It means Percentage amount Net income 10 % of Net sales

c) Assume the marketing department has presented a plan to increase advertising expenses by $340
million. It expects this plan to result in an increase in both net sales and cost of goods sold of 25%.
(Hint: Increase both sales revenue and sales returns and allowances by 25%.) Redo parts (a) and (b)
and discuss whether this plan has merit. (Assume a tax rate of 34%, and round all amounts to whole
dollars.
 Forum Session 3 – Accounting for Managers (LOP1)
Heru Meireza (2140070425)

The Clorox Company

Income Statement
For the Year Ended June 30, 2020
(In millions dollars)
Sales
Sales Revenue 7.163
Less : Sales Return & Allowance 350
Net Sales 6.813
Cost Of Good Sold 3.880
Gross Profit 2.933
Operating Expense
Salaries & Wages Expense 460
Utilities expense 60
Advertising expense 839
Depreciation expense 90
Research and development expense 114
Rent expens 105
Total Operating Expense 1.668
Income from Operations 1.265
Other revenue and gains

Other expenses and losses

Interest expense 161
Loss on disposal of plant assets 46
207
Income before income taxes 1.058
Income tax expense 360
Net Income 698

Gross Profit 2.933

Gross Profit Rate : 43%
Net Sales 6.813

Net Income 698

Profit Margin Ratio 10,24%
Net Sales 6.813

The Plan Increase advertising Expense $340 will increase profit margin Form 9,82 % to 10,24 %

Problem 2

Eggers Company reports the following for the month of June.

 Forum Session 3 – Accounting for Managers (LOP1)
Heru Meireza (2140070425)

a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO,
and (3) average-cost. (Round average unit cost to three decimal places).
FIFO
Date Explanation Units Cost Total Cost
Jun 1 Beginning 120 $5 600
12 Purchase 370 6 2.220
23 Purchase 200 7 1.400
Cog Avalilable For sale 690 4.220

12 Purchase 30 6 180
23 Purchase 200 7 1.400
Ending inventory 230 1.580

1 inventory 120 5 600

23 Purchase 340 6 2.040
Cost of goods Sold 460 2.640

LIFO
Date Explanation Units Cost Total Cost
Jun 1 Beginning 120 $5 600
12 Purchase 370 6 2.220
23 Purchase 200 7 1.400
Cog Avalilable For sale 690 4.220

1 Purchase 120 5 600

12 Purchase 110 6 660
Ending inventory 230 1260

12 inventory 260 6 1.560

23 Purchase 200 7 1.400
Cost of goods Sold 460 2.960

Average
Date Explanation Units Cost Total Cost
Jun 1 Beginning 120 $5 600
12 Purchase 370 6 2.220
23 Purchase 200 7 1.400
Cog Avalilable For sale 690 4.220
Weighted average unit cost 4.220 : 690 = 6,116
Ending inventory 230 6,116 1.407
Cost of goods Sold 460 6,116 2.813

b) Which costing method gives the highest ending inventory? The highest cost of goods sold? Why?

Highest ending inventory FIFO in amount $1,580, the reason is cost of goods sold from FIFO
because the first inventory unit cost which is lower rate on unit cost, the result on cost of goods
sold is lower. At the end, with the lower cost of goods sold resulting higher ending inventory

Highest cost of goods sold LIFO in amount $2,960, the reason is cost of goods sold from LIFO
because the last inventory unit cost which is higher rate on unit cost, the result on cost of goods
sold is become higher.
 Forum Session 3 – Accounting for Managers (LOP1)
Heru Meireza (2140070425)

c) How do the average-cost values for ending inventory and cost of goods sold relate to ending
inventory and cost of goods sold for FIFO and LIFO?
Average Cost values for ending inventory and COGS related to ending inventory because
Average total cost is total unit of ending inventory. FIFO and LIFO related to COGS because
FIFO and LIFO the total unit COGS is sold multiple by unit cost

d) Explain why the average cost is not $6?S

Average cost is $6,116 because calculating the average cost, not only average the unit cost,