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Lesson 1: Cost Concepts and Categories (1a thru 1e)
Written Communications in Accounting—Documenting Computations
Lesson 0 had a document titled Written Communication in Accounting. The advice there was intentionally kept short to avoid overwhelming you. Now, after submitting the Hair Dryer case, you are ready for more written communication guidance.
Three ways to document computations are displayed below with a fourth way to be covered later. All three use the Excel table format, which is preferable even when using Word or writing out computations. For clear communication, computations need to be documented on the printed page, in case a reader works with a printout. The numbers used in the examples are from the Hair Dryer Case in Lesson 0. Notice how easily you can understand the solutions presented. This is the point of good written communication—making it easy for the reader to understand what is presented.
Option 1
Option 1 is the clearest when the computations are complex or have many steps. Option 1 is always acceptable but may be overkill for simple computations.
|
Item
|
Price
|
|
|---|---|---|
| Sticker Price | $ 10.00 | |
| Sales Tax | 0.60 | |
| Gas: | ||
| Gas cost per gallon | $3.30 | |
| Divided by: miles per gallon |
30
| |
| Gas cost per mile | 0.11 | |
| Times: Extra miles driven to go to Walmart |
2
| |
| Gas cost to go to Walmart |
0.22
|
|
| Total Cost |
$ 10.82
|
|
Options 2 and 3
Some might prefer Options 2 or 3 for simple computations, simply because they do not clutter the worksheet with excessive detail, which might waste the reader's time.
Option 2
|
Item
|
Price
|
|---|---|
| Sticker Price | $ 10.00 |
| Sales Tax | 0.60 |
| Gas ($3.30 per gallon ÷ 30 miles per gallon × 2 extra miles) |
0.22
|
| Total Cost |
$ 10.82
|
Option 3
|
Item
|
Price
|
|---|---|
| Sticker Price | $10.00 |
| Sales Tax | 0.60 |
| Gas* |
0.22
|
| Total Cost |
$10.82
|
|
*($3.30 per gallon ÷ 30 miles per gallon × 2 extra miles) |
|
Option 4
We will learn a fourth way to document your computations when we use a worksheet for the activity-based costing assignment.