Assume that you must make a presentation to the marketing staff explaining the difference between product and period costs. Your supervisor tells you the marketing staff would also like clarification regarding prime and conversion costs and an explanation of how these terms fit with product and period cost. You are told that many on the staff are unable to classify costs in their merchandising activities.

Prepare a one-page memorandum to your supervisor outlining your presentation to the marketing staff.

Shown here are annual financial data at December 31, 2011 taken from two different companies.

Pinnacle Retail Slope Board Manufacturing

Beginning Inventory

Merchandise $150,000

Finished goods $300,000

Cost of Purchases 250,000

Cost of goods manufactured 586,000

Ending Inventory

Merchandise 100,000

Finished 200,000

Compute the cost of goods sold section of the income statement at December 31, 2011, for each company. Include the proper title and format in the solution.

Write a half-page memorandum to your instructor (a) identifying the inventory accounts and (b) describing where each is reported on the income statement and balance sheet for both companies.