1. Production costs and income statement presentation Pirelli SpA is a large Italian tyre and…

 

1. Production costs and income statement presentation

Pirelli SpA is a large Italian tyre and cable manufacturer. Exhibit 9.16 shows part of the company’s 2001 consolidated income statement (in the English-language version).

 

 

Required

(a) Did the group’s inventories of work in process, semifinished and finished products increase or decrease in 2001? By how much?

 

(b) What is the meaning of ‘Raw materials, supplies and goods for resale’ under ‘Production costs’? Is it the cost of purchases? Or is it the cost of items consumed and sold? Give evidence for your answer.

 

(c) Under ‘Production value’, Pirelli shows the item ‘Increase in property, plant and equipment’. What is this? What would happen to profit (before tax) in 2001 if this item were not in the income statement?

 

(d) Pirelli describes a line item as ‘Difference between production value and production costs’. What is the more usual name for this?