Question

Brigade Builders, Inc. designs decks, gazebos, and play equipment for residential homes. The following was provided for the year ended September 30, 2018: Direct labor $800,000

Direct material purchases 80,000

Administrative expenses 155,000

Overhead 95,000

Selling expenses 325,000

Beginning direct materials inventory 43,000

Beginning designs in process 21,000

Ending direct materials inventory 18,000

Ending designs in process 45,000

The average design fee is $900. There were 3,500 designs processed during the year.

Required: a. Prepare a statement of cost of services sold. b. Prepare an income statement. c. Discuss three differences between services and tangible products.

Answer 1

STATEMENT OF COST

Direct material purchased    $80,000

(+)Beginning inventory $43000

(-) Ending inventory    (18000)

Direct material consumed    105000

(+)Direct labour $8,00,000

PRIME COST                                                                                $9,05,000

(+) Overhead                                                                                 $95,000

                                                                                                   $10,00,000

(+) Beginning designs in process                                                    $21,000

(-) Ending designs in process                                                          $45,000

WORKS COST                                                                              $97,60,000

(+)Administration cost                                                                     $1,55,000

COST OF SERVICE PRODUCED                                                    $11,31,000

(+)selling expenses                                                                         $3,25,000

COST OF SERVICES SOLD                                          $14,56,000

(B)

INCOME STATEMENT

sale of services                                                          $31,50,000

Less works cost                                                        ( $9,76,000)

GROSS MARGIN                                                         21,74,000

Less Operating cost:-

Administration expenses                                               (1,55,000)

Selling expenses                                                           (3,25,000)

NET MARGIN                                                              $16,94,000

(c)

DIFFERENCES BET WEEN SERVICES AND TANGIBLE PRODUCTS

1. Tangible products are those items which cn be touched ,seen and smelled. But services cannot be seen touched and smelled.

2. Need Vs.relationship:- Products tend to fill a need or want for the customer. Marketing of services is more about building relationship and trust.

3. One Vs Many :- Physical products usually come in many formulations.eg. clothes come in different styles, colour size etc.

                Services typically do not offer multiple formulations

4.Comparing quality:- It is much harder for .consumers to evaluate the quality of the services received than the quality of products purchased.

5. It is much easier to return a product than a service.