Spiders Geophysics Issues an Invoice to Huslia Goldmines for $150,000

question 68

Essay

Spiders Geophysics issues an invoice to Huslia Goldmines for $150,000 on August 5, 2012. The invoice states the payment terms are 5/10, net 30. Huslia pays the invoice on August 14, 2012. How should Spiders record the invoice and its subsequent collection if it uses (a)the gross method or (b)the net method?

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Definitions:

Denominator Activity Level

A term used in cost accounting to represent the total activity or volume that is used to allocate fixed costs to units of output.

Standard Cost System

A cost accounting system that uses cost units determined in advance for materials, labor, and overhead to estimate the cost of production.

Fixed Manufacturing Overhead

Regular, consistent expenses related to manufacturing that do not vary with the level of production, such as rent, salaries, and insurance.

Variable Overhead Efficiency Variance

The difference between the actual variable overhead cost incurred and the expected (or standard) variable overhead cost for the actual production volume.