Question

ABC Ltd. purchases units of wood frames that have manufacturer’s rebates from Pax Inc. The rebate requires ABC to purchase a minimum number of units in a calendar year. The initial unit cost of each wood frame is $4.0 before any rebate. If more than 4,160 units are purchased, the rebate is $0.75 per unit for all units purchased beyond the base amount of 4,160 units. ABC Ltd. has a June 30 fiscal year end. By June 30, 2017, ABC had purchased 3,480 wood frames for the six-month period from January 1, 2017, to June 30, 2017. ABC estimates that an additional 3,480 wood frames will be purchased from July 1, 2017, to December 31, 2017. ABC’s management is very confident that this estimate will be confirmed by future purchases from Pax Inc.

Calculate the amount of any rebate that Culver should accrue at June 30, 2017, assuming the rebate cannot be cancelled by Pronghorn. (Round answer to 2 decimal places, e.g. 52.75.)

Accrued rebate receivable  $____________

Calculate the unit cost that Culver should use in the costing of wood frames, using the perpetual inventory system. (Round answer to 4 decimal places, e.g. 52.1212.)

Per Unit cost $__________________

Answer 1

1. Accrued Rebate receivable will be calculated on the estimation basis as mention above in the question that from JAN To JUNE 3480 Wood Frames Purchased and in the next 6 months i.e. from JULY to DEC another 3480 Wood Frames will be purchased . For the PAX Inc there should be purchase of 4160Wood Frames in Calender year so in that case ABC Co. is satisfying the base Purchase in the next half so the accrued will be assumed on the estimation basis will 3480(JAN - JUNE ) + 3480 ( JULY - DEC ) = 6960 in the calender year - 4160 (Base purchase units) = 2800 units @ .75 Rebate cost = 2800 * 0.75 = $2100will be accrued rebate receivable .

2. PERPETUAL INVENTORY SYSTEM

JAN - JUNE purchases 3480 units @ 4/ unit = $13920

+ JULY - DEC purchased 3480 units @ 4/ unit = $13920

TOTAL COST = $27840

- REBATE ( After 4160 units )6960units - 4160 = 2800 @0.75 = $2100

THEREFORE TOTAL COST = $25740

TOTAL COST PER UNIT = $27840 - $2100 / 6960

= $ 3.70