Case Study: Adventurous Computer Games, Inc. Essay

957 Words Dec 4th, 2014 4 Pages
Adventurous Computer Games, Inc.
Part 1. Accounting for the Cost of Software Programs at AdCom Games
Adcom games should allocate all costs from the Product Development Support Center, as well as the project team labor, to the games that are developed. I believe that all costs from the Product Development Support Center (PDSC) should be allocated in order to properly match expenses with revenues. Costs should be allocated on the basis of lines of code written. For example, 16% of all code written pertained to “Secret Agent”. Because 16% of work product went towards this game, 16% of all costs incurred by the PDSC should be allocated to this game as well. Labor costs pertaining to this game should be added to the allocated PDSC
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This is done by multiply the original percentage of allocation for costs, and then multiplying that by the costs incurred after technological feasibility has been established. The chart below shows a break-down of the capitalization of individual costs.


The total amount of the costs which should be matched with Revenues for 2003 is $71,129. This is done by taking the capitalization amount shown above (217,520), dividing it by the 200,000 unit estimate, and multiplying it by the units that were sold in 2003. The calculation is shown below.

This accounting policy will improve the preliminary financial statements drastically. Net income will be substantially higher; rather than expensing everything right away, we are matching the expenses with revenues. This better represents the earnings of the company. Additionally, the balance sheet will be show a higher amount of assets due to the capitalization of expenses. This will increase asset-to-debt ratios and improve the attractiveness of the company to investors.
If it can be reasonably claimed that technological feasibility was established one quarter earlier, I believe we should make this claim. If we establish technological feasibility earlier, we will be able to capitalize more costs. If we capitalize more costs, our net income will increase and our balance sheet will show more assets. Overall,…

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