Managerial Accounting for Advertisement Expenses and Commission

Question: Discuss about the Managerial Accounting for Advertisement Expenses and Commission. Answer: The provided case study states that the president of Kranbrack Corporation orders to reclassify period costs as product costs. Period costs are such costs that cannot be capitalized into inventory, fixed assets and prepaid expenses. The inclusion of these types of expenses can be seen in the selling and administration expenses of the companies that is a major force to reduce the organizational profits. They are selling expenses, advertisement expenses, commission, depreciation and others (Samak-Kulkarni Rajhans, 2013). On the other hand, products costs are such costs that are incurred for developing the products. This cost can be recorded as inventory asses in the balance sheet in case the products are not sold. Thus, the above discussion shows that the reclassification of the period costs into the product costs would decrease the selling and administrative expenses of the companies. At the same time, the assets would be increased. Overall, this reclassification process would increa se the reported earnings of the company (Drury, 2013). It is the responsibility of the management of the companies to record the expenses on their actual basis. Only then, the financial reports will show the actual financial position of the companies irrespective of good or bad. However, in the following case, it can be seen that the president of Kranbrackk Corporation passed the order to show the period costs as product costs with the help of reclassification process. Thus, this particular process does not show the actual revenue and profitability of the company. For this reason, this is not an ethical action. References DRURY, C. M. (2013). Management and cost accounting. Springer. Samak-Kulkarni, S. M., Rajhans, N. R. (2013). Determination of optimum inventory model for minimizing total inventory cost.Procedia Engineering,51, 803-809.