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In: Accounting

Refer to the following article: Trentmann, Nina, "Danish Insulin Maker Novo Nordisk Cuts Jobs, Shifts R&D...

Refer to the following article: Trentmann, Nina, "Danish Insulin Maker Novo Nordisk Cuts Jobs, Shifts R&D Spending; CFO says R&D savings will be reinvested in artificial intelligence, cloud services and automation technologies," Wall Street Journal, 01 Nov 2018 (Online). Drawing from what you have learned in this course as well as any other sources, provide a well labeled and clearly articulated answer -- with explanation and proper references -- to the following:

    • Using the accounting terminology used to date in this course, what kind (or classification) of costs are research and development costs, and where do they usually fit in a profit and loss (or income) statement?
    • Are research and development costs ever included in costs of goods manufactured? If not, why not? If so, to what extent and under what circumstances?
    • Why would it make sense to avoid the complete automation of cash management and accounts receivable tasks (i.e. to continue to use humans for some tasks(? Explain.
  • Where appropriate, properly cite any readings, specific pages from any secondary source, or other sources that contributed to or that support your explanation.

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Expert Solution

  • Using the accounting terminology used to date in this course, what kind (or classification) of costs are research and development costs, and where do they usually fit in a profit and loss (or income) statement?

A

Research and development costs are the costs that are incurred to create a better product that give better efficiency in term of use and reduced costs in term of the production cost.

When we do the R&D we come up with some innovations on how to reduce the cost that we incur to produce the goods.

These costs are never included in the COGS as they are the indirect costs and are not directly realted with the production of the goods.

Such costs are shown under the indirect expenses head as they are not include to calculate the gross margin ratios.

  • Are research and development costs ever included in costs of goods manufactured? If not, why not? If so, to what extent and under what circumstances?

No R&d cost is not included in the COGS as they are the indirect expenses.

They can be included in COGS when this can be make sure that the R&D is absolutely required for the manufacturing of product and R&D is directly related with the product.

Why would it make sense to avoid the complete automation of cash management and accounts receivable tasks (i.e. to continue to use humans for some tasks(? Explain

This is advisable because there are some cases where we want the humans brains, such cases can be deciding a situation as to write off the debts or not

Replying to customers queries. So this is advisable that not whole of the process is automated.

  • Where appropriate, properly cite any readings, specific pages from any secondary source, or other sources that contributed to or that support your explanation.

Regarding the cogs part this principles are mentioned in the GAAP and the IFRS rule book.


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