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How does a merchandising company calculate unit cost per item?

Short Answer

Expert verified

The merchandising company calculates the unit cost per item by calculating a total number of items sold from the total cost of goods sold.

Step by step solution

01

Definition of merchandising company

A merchandising company is defined as a company that sells the goods which are purchased from the supplier.

02

Computation of cost per item

The cost per item for merchandising company is computed by using the formula in which the total cost of goods sold is divided by the total number of items sold.

UnitProductCost=TotalCostofGoodsManufacturedTotalUnitsProduced

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Question:Applying ethical standards

Natalia Wallace is the new controller for Smart Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the companyโ€™s five-year history. Cauvet explains that financial analysts have again predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:

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d. Reduce the estimated Bad Debts Expense from 5% of Sales Revenue to 3%, given the companyโ€™s continued strong performance.

e. Postpone routine monthly maintenance expenditures from December to January.

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1. Which of these suggested strategies are inconsistent with IMA standards?

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