You have just been hired by EduRom Company, which was organized on January 2 of

Question

You have just been hired by EduRom Company, which was organized on January 2 of the current year. The company manufactures and sells a variety of educational DVDs for personal computers. It is your responsibility to supervise the employees who take orders from customers over the phone and to arrange for shipping orders via Federal Express, Canada Post, and other freight carriers.

The company is unsure how to classify your annual salary in its cost records. The company's cost analyst says that your salary should be classified as a manufacturing (product) cost; the controller says that it should be classified as a selling expense; and the president says that it doesn't matter which way your salary cost is classified.

Required:

1 Which viewpoint is correct? Why?

2. From the point of view of the reported operating income for the year, is the president correct in saying that it doesn't matter which way your salary cost is classified? Explain.

Explanation / Answer

1. Edurom company manufactures and sells educational DVDs. you are employed by the company to supervise the staff that is resposible to take orders on phone and arrange shipping. now cost analyst has view to classify your salary as a manufacturing expenses and controller has the view to calssify your salary as a selling expenses. now we can analyze the nature of your job, your job is to supervise the employees who are taking orders and arraging shipping of sales orders so by nature we can say that you are supervising sales staff because taking orders and shipping are the part of sales function not manufacturing. in nutsheel your activity in company not contributing to any manufacturing you are selling a manufactured goods.

so you are a sales supervisor, and the view of controller is right here that the your salary has to be calssify as sales expenses. so controller's point of view is correct and your salary is a sales expenses for the company.

2. president point of view that it doesn't matter how to classify this salary is not correct as we know that the manufacturing expenses are the part to calculate the cost of goods manufactured and sales expenses are the part of calculating cost of goods sold. so classify this expenses will impact result figure of these two. so president's view that it will not impact is not right as we can say that classification of expenses among manufacturing expenses and sales expenses will impact the calculation of cost of goods manufactured and cost of goods sold.

although president can be right if we are taking about the net income . classification of expenses will not impact the calculation of net income as it will be the same in both cases. but as a science it will not be right to say that president view is right.

So we can say that president view is not right if we are calculating cost of goods sold and cost of goods manufactued but president can be eventually right if we are talking only about net income.

So both points raises in problem are cleared from above explanation.

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