accounting multi-part question and need the explanation and answer to help me learn.
Answer the questions required by Mini Case 2-63 located at end of Chapter 02 (reproduced bellow).
Requirements: as long as it has to be
4/13/23, 3:22 PMOneNotehttps://fnu-my.sharepoint.com/personal/gdeschryver_fnu_edu/_layouts/15/Doc.aspx?sourcedoc={6fd0f696-c6ba-4c1c-a280-a1db59…1/2Case 2-63 Thursday, April 13, 2023 3:16 PM Case 2-63 Cost Classification, Income Statement Gateway Construction Company, run by Jack Gateway, employs 25 to 30 people as subcontractors forlaying gas, water, and sewage pipelines. Most of Gateway’s work comes from contracts with city andstate agencies in Nebraska. The company’s sales volume averages $3 million, and profits varybetween 0 and 10% of sales. Sales and profits have been somewhat below average for the past 3 years due to a recession andintense competition. Because of this competition, Jack constantly reviews the prices that othercompanies bid for jobs. When a bid is lost, he analyzes the reasons for the differences between hisbid and that of his competitors and uses this information to increase the competitiveness of futurebids. Jack believes that Gateway’s current accounting system is deficient. Currently, all expenses aresimply deducted from revenues to arrive at operating income. No effort is made to distinguish amongthe costs of laying pipe, obtaining contracts, and administering the company. Yet all bids are basedon the costs of laying pipe. With these thoughts in mind, Jack looked more carefully at the income statement for the previousyear (see below). First, he noted that jobs were priced on the basis of equipment hours, with anaverage price of $165 per equipment hour. However, when it came to classifying and assigning costs,he needed some help. One thing that really puzzled him was how to classify his own $114,000 salary.About half of his time was spent in bidding and securing contracts, and the other half was spent ingeneral administrative matters. Details An account shows: Gateway Construction Company Income Statement For the Year Ended December31, 2017- Sales (18,200 equipment hours @ $165 per hour) $3,003,000 Less expenses: Utilities $24,000, Machine operators 218,000, Rent, office building 24,000, CPA fees 20,000, Other direct labor265,700 Administrative salaries 114,000, Supervisory salaries 70,000, Pipe 1,401,340, Tires and fuel418,600 Depreciation, equipment 198,000, Salaries of mechanics 50,000, Advertising 15,000, Totalexpenses 2,818,640, Operating income $ 184,360. Required: 1.Classify the costs in the income statement as (1) costs of laying pipe (production costs), (2)costs of securing contracts (selling costs), or (3) costs of general administration. For productioncosts, identify direct materials, direct labor, and overhead costs. The company never hassignificant work in process (most jobs are started and completed within a day). 2. Assume that a significant driver is equipment hours. Identify the expenses that would likely betraced to jobs using this driver. Explain why you feel these costs are traceable using equipmenthours. What is the cost per equipment hour for these traceable costs?
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