(Solution Manual) Managerial Accounting Tools for Business Decision Making

Weygandt,Kimmel,Mitchell, 9

Business

Solution Manual

9th Edition

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Solution Manual for Managerial Accounting Tools for Business Decision Making, The downloadable file consists of 910 pages, and the total size of the file is 6.05 MB. Purchase now only for highly discounted price.

Author(s): Weygandt, Kimmel, Mitchell

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Solutions Manual for Managerial Accounting Tools for Business Decision Making, 9e Jerry Weygandt, Paul Kimmel, Jill Mitchell (All Chapters ) CHAPTER 1 Managerial Accounting Learning Objectives 1. Identify the features of managerial accounting and the functions of management. 2. Describe the classes of manufacturing costs and the differences between product and period costs. 3. Demonstrate how to compute cost of goods manufactured and prepare financial statements for a manufacturer. 4. Discuss trends in managerial accounting. ANSWERS TO QUESTIONS 1. (a) Not true . Managerial accounting is a field of accounting that provides economic and financial information for managers and other internal users. (b) Joe is incorrect. Managerial accounting applies to all types of businesses —service, merchandising, a nd manufacturing. LO1 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management 2. (a) Financial accounting is concerned primarily with external users such as stockholders, creditors, and r egulators. In contrast, managerial accounting is concerned primarily with internal users such as officers and managers. (b) Financial statements are the end product of financial accounting. The se statements are prepared quarterly and annually. In manageri al accounting, internal reports may be prepared as frequently as needed. (c) The purpose of financial accounting is to provide general -purpose information for external users. The purpose of managerial accounting is to provide special -purpose information f or specific internal decisions. LO1 BT: C Difficulty: Easy TOT: 5 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management 3. Differences in the content of the reports are as follows: Financial Managerial • Pertains to business as a whole and is highly aggregated. • Limited to accrual accounting and cost data. • Generally accepted accounting principles. • Pertains to subunit s of the business and may be very detailed. • Extends beyond accrual accounting system to any relevant data. • Standard is relevance to decisions. In financial accounting, financial statements are verified annually through an independent audit by certified public accountants. There are no independent audits of internal reports prepared by managerial accountants. LO1 BT: C Difficulty: Easy TOT: 5 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management 4. Linda should know that the management of an organization performs three broad functions: (1) Planning requires management to look ahead and to establish objectives. (2) Directing involves coordinating the diverse activities and human resources of a com pany to produce a smooth -running operation. (3) Controlling is the process of keeping the company’s activities on track. LO1 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management 5. Not true . Decision -making is not a separate management function. Rather, decision -making involves the exercise of good judgment in performing the three management functions explained in the answer to question f our above. LO1 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management 6. Employees with line positions are directly involved in the company’s primary revenue generating operating activities. Examples would include factory managers and supervisors, and the vice president of operations. In contrast, employees with staff positio ns are not directly involved in revenue -generating operating activities, but rather serve in a support capacity to line employees. Examples include employees in finance, legal, and human resources. LO1 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AI CPA FC: Measurement , Analysis and Interpretation IMA: Cost Management Questions Chapter 1 (Continued) 7. The difference in balance sheets pertains to the presentation of inventories in the current asset section. In a merchandising company, only inventor y is shown. In a manufacturing company, three inventory accounts are shown: finished goods, work in process, and raw materials. LO3 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost management 8. Manufacturing costs are classified as either direct materials, direct labor, or manufacturing overhead. LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost management 9. No, Mel is not c orrect. The distinction between direct and indirect materials is based on two criteria: (1) physical association and (2) the convenience of making the physical association. Materials which cannot be easily associated with the finished product are considere d indirect materials. LO2 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost management 10. Product costs, or inventoriable costs, are costs that are a necessary and integral part of producing the finished product , they are classified as manufacturing costs . Period costs are costs that are identified with a specific time period rather than with a salable product. These costs relate to nonmanufacturing activities and therefore are not inventoriab le costs , they are expensed as incurred . LO2 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost management 11. A merchandising company that uses the periodic inventory system reports beginning inventory, cost of goods purchased, and ending inventory in the cost of goods section of the income statement . A manufacturing company reports beginning finished goods inventory, cost of goods manufactured, and ending finished goods inventory in its determ ination of cost of goods sold . LO3 BT: C Difficulty: Easy TOT: 5 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost management 12. (a) X = total cost of work in process. (b) X = cost of goods manufactured. LO3 BT: C Diff iculty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost management 13. Raw materials inventory, beginning ................................ ................................ ....... $12,000 Raw materials purchases ................................ ................................ ...................... 170,000 Less: Total raw materials available for use ................................ ............................ 182,000 Raw materials inventory, ending ................................ ................................ ............ 15,000 Direct materials used ................................ ................................ .................... $167,000 LO3 BT: AP Difficulty: Easy TOT: 3 min. AACSB: A nalytic AICPA FC: Measurement , Analysis and Interpretation IMA: Cost management ($12,000 + $170,000 - $15,000 = $167,000) (Beg. RM + RM purch. – End. RM = DM used) 14. Direct materials used ................................ ................................ ............................. $240,000 Direct labor ................................ ................................ ................................ ........... 220,000 Total manufacturing overhead ................................ ................................ ............... 180,000 Total manufacturing costs ................................ ................................ ............. $640,000 LO3 BT: AP Difficulty: Easy TOT: 2 min. AACSB: A nalytic AICPA FC: Measureme nt, Analysis and Interpretation IMA: Cost management ($240,000 + $220,000 + $180,000 = $640,000) (DM used + DL used + Tot. MOH = Tot. mfg. costs) 15. (a) Total cost of work in process ($26,000 + $640,000) ................................ ...... $666,000 (b) Cost of goods manufactured ($666,00 0 – $32,000) ................................ ...... $634,000 LO3 BT: AP Difficulty: Easy TOT: 2 min. AACSB: Analytic AICPA FC: Measurement , Analysis and Interpretation IMA: Cost management [(a: $26,000 + $640,000 = $666,000); (b: $666,0000 - $32,000 = $634,000)] [(a: Beg. WIP + Tot. mfg. costs = Tot. cost of WIP); (b: Tot. cost of WIP – End. WIP = COGM)] 16. The order of reporting is finished goods inventory, work in process inventory, and raw materials inventory. LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: None AICPA FC: Measureme nt, Analysis and Interpretation IMA: Cost management Questions Chapter 1 (Continued) 17. The products differ in how each are consumed by the customer. Services are consumed as they are provided ; and not capitalized into inventory. Meals at a restaurant a re the best example where they are consumed immediately by the customer. There could be a long lead time before the product is sold to a customer in a manufacturing environment. LO4 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost management 18. The product costing techniques apply equally well to manufacturers and service companies. Each needs to keep track of the cost of production or services in order to know whether it is generating a profit. The techniques shown in this chapter, to accumulate manufacturing costs to determine manufacturing inventory, are equally useful for determining the cost of services. LO4 BT: K Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement , Anal ysis and Interpretation IMA: Cost management 19. The value chain refers to all activities associated with providing a product or service. For a manufac turer, these include research and development, product design, acquisition of raw materials, producti on, sales and marketing, delivery, customer relations, and subsequent service. The value chain includes both manufacturing and nonmanufacturing activities and costs. LO4 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Decision Modeling IMA: Strategic Planning 20. An enterprise resource planning (ERP) system is an integrated software system that provides a comprehensive, centralized resource for information. Its primary benefits are that it replaces the many individual systems typically used for receivables, payables, inventory, human resources, etc. Also, it can be used to get information from, and provide information to, the company’s customers and suppliers. LO4 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: System and Proce ss Management IMA: Strategic Planning 21. In a just -in-time inventory system, the company has no extra inventory stored. Consequently, if some units that are produced are defective, the company will not have enough units to deliver to customers. LO4 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: System and Process Management IMA: Strategic Planning 22. The balanced scorecard is called “balanced” because it strives to not over emphasize any one performance measure, but rather uses both fin ancial and non -financial measures to evaluate all aspects of a company’s operations in an integrated fashion. LO4 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: System and Process Management IMA: Strategic Planning 23. Budgets are prepared by companies to provide future direction. Because the budget is also used as an evaluation tool, some managers may try to game the budgeting process by underestimating their division’s predicted performance so that it will be easier to meet their performa nce targets. On the other hand, if the budget is set at unattainable levels, managers sometimes take unethical actions to meet targets to receive higher compensation or in some cases to keep their jobs. LO4 BT: C Difficulty: Easy TOT: 3 min. AACSB: Eth ics AICPA PC: Ethical Conduct IMA: Business Applications 24. According to the Sarbanes -Oxley Act of 2002, CEOs and CFOs must now certify that financial statements give a fair presentation of the company’s operating results and its financial condition and that the company maintains an adequate system of internal controls. In addition, the composition of the board of directors and audit committees receives more scrutiny, and penalties for misconduct have increased. LO4 BT: C Difficulty: Easy TOT: 3 min . AACSB: Ethics AICPA FC: Measurement , Analysis and Interpretation AICPA PC: Ethical Conduct IMA: FSA, Business Applications 25. Activity -based costing is an approach used to allocate overhead based on each product’s relative use of activities in ma king the product. Activity -based costing is beneficial because it results in more accurate product costing and in more careful scrutiny of all activities in the value chain. LO4 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement, Ana lysis and Interpretation IMA: Cost management SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 1.1 Financial A ccounting Managerial Accoun ting Primary users External users Internal users Types of reports Financial statements Quarterly and annually Internal reports As frequently as needed Frequency of reports Quarterly and ann ually As frequently as needed Purpose of reports General -purpose Special -purpose information for specific dec isions Content of reports Perta ins to business as a whole. Highly aggregated. Limited to accrual accounting and cost data. Generally accepted accounting principles Pertains to subunits of the business. Very detailed. Extends beyond accrual accounting to any relevant data. Evaluated bas ed on relevance to dec isions Verification process Annual audit by certified public accountant No independent audits LO1 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management BRIEF EXERCISE 1.2 (a) 1. Planning. (b) 2. Directing. (c) 3. Controlling. LO1 BT: C Difficulty: Easy TOT: 1 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management BRIEF EXERCISE 1.3 (a) DM Frames and tires used in manufacturing bic ycles. (b) DL Wages paid to production workers. (c) MO Insurance on factory equipment and machi nery. (d) MO Depreciation on factory equipment. LO2 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management BRIEF EXERCISE 1.4 (a) Direct materials. (b) Direct materials. (c) Direct labor. (d) Manufacturing overhead. (e) Manufacturing overhead. (f) Direct materials. (g) Direct materials. (h) Manufacturing overhead. LO2 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management BRIEF EXERCISE 1.5 (a) Product. (b) Period. (c) Period. (d) Period. (e) Product. (f) Product. LO2 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management BRIEF EXERCISE 1.6 Product Costs Direct Materials Direct Labor Manufacturing Overhead (a) (b) (c) (d) X X X X LO2 BT: C Difficult y: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management BRIEF EXERCISE 1.7 (a) Direct materials used ................................ ............................ $180,000 Direct labor ................................ ................................ ............ 209,000 Total manufacturing overhead ................................ ............. 208,000 Total manufacturing costs ................................ ............ $597,000 BRIEF EXERCISE 1.7 (Continued) (b) Beginning work in process ................................ .................. $ 25,000 Total manufacturing costs ................................ ................... 597,000 Total cost of work in process ................................ ....... $622,000 ($25,000 + $597 ,000 = $622,000) (Beg. WIP + Tot. mfg. costs = Tot. cost in WIP) LO3 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Analytic AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management BRIEF EXERCISE 1.8 ROLAND COMPANY Balance Sheet (Partia l) December 31, 2022 ASSETS Current assets Cash ................................ ................................ ... $ 62,000 Accounts receivable ................................ ......... 200,000 Inventories Finished goods ................................ .......... $91,000 Work in process ................................ ........ 87,000 Raw materials ................................ ............ 83,000 261,000 Prepaid expenses ................................ ............. 38,000 Total current assets .......................... $561,000 LO3 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Analytic AICPA FC: Reporting IMA: Cost Management [$62,000 + $200,000 + ($91,000 + $87,000 + $83,000) + $38,000 = $561,000] [Cash + Accts. rec. + (Fin. gds. + WIP + Raw mat.) + Prepd. exp. = Tot. current assets] BRIEF EXERCISE 1.9 Direct Materials Used Direct Labor Manufactur ing Overhead Total Manufacturing Costs (1) (2) (3) $81,000(b) $144,000(c) $151,000(a) LO3 BT: AP Difficulty: Easy TOT: 2 min. AACSB: Analytic AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management (a) $40,000 + $61 ,000 + $50,000 = $151,000 (b) $296,000 - $140,000 - $75,000 = $81,000 (c) $310,000 - $55,000 - $111,000 = $144,000 BRIEF EXERCISE 1.10 Total Manufactu ring Costs Work in Process (January 1) Work in Process (Dece mber 31) Cost of Goods Manufactured (1) (2) (3) $151,000* $133,000(b) $58,000(c) $189,000(a) *$40,000 + $61,000 + $50,000 (data from BE 1.9) LO3 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Analytic AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management (a) $151,000 + $120,000 - $82,000 = $189,000 (b) $331,000 + $98,000 - $296,000 = $133,000 (c) ($310,000 + $463,000 ) - $715,000 = $58,000 BRIEF EXERCISE 1.11 One implication of Sarbanes -Oxley Act of 2002 ( SOX ) was to clarify top management’s responsibility for the company’s financial statements. CEOs and CFOs must certify that financial statements give a fair presentation of the company’s operating results and its financial condition. In addition, top managers must certify that the company maintains an adequ ate system of internal controls to ensure accurate financial reports. Also, more attention is now paid to the composition of the company’s board of directors. In particular, the audit committee of the board of directors must be comprised entirely of indepe ndent members (that is, non -employees) and must contain at least one financial expert. Finally, to increase the likelihood of compliance with these and other new rules, the penalties for misconduct were substa ntially increased to include not only fines but also incarceration . LO4 BT: C Difficulty: Easy TOT: 6 min. AACSB: Ethics, Communication AICPA PC: Ethical Conduct , Communication IMA: FSA, Business Applications SOLUTIONS FOR DO IT! EXERCISES DO IT! 1.1 1. False . The board of directo rs’ primary responsibility is to formulate the operating policies of the company. 2. False . Financial accounting reports pertain to the business as a whole and are highly aggregated (condensed). 3. False . Managerial account reports do not have to follow GA AP and are not audited by CPAs. 4. True LO1 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management DO IT! 1.2 Period costs : Advertising Salaries of sales representatives Product costs : Blank CDs (DM) Depreciation of CD image burner (MO) Salary of factory manager (MO) Factory supplies used (MO) Paper inserts for CD cases (DM) CD plastic cases (DM) Salaries of factory maintenance employees (MO) Salaries of employees who burn music onto C Ds (DL) LO2 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management DO IT! 1.3 TOMLIN COMPANY Cost of Goods Manufactured Schedule For the Month Ended April 30 , 2022 Work in proces s, April 1 ................................ $ 5,000 Direct materials ................................ .............. Raw materials, April 1 ................................ $ 10,000 Raw materials purchases .......................... 98,000 Total raw materials available for use ........ 108,000 Less: Raw materials, April 30 ................... 14,000 Direct materials used ................................ . $ 94,000 Direct labor ................................ ..................... 80,000 Manufacturing overhead ................................ 160,000 Total manufacturing costs ............................. 334,000 Total cost of work in process ........................ 339,000 Less: Work in process, April 30 ................... 3,500 Cost of goods manufactured ......................... $335,500 LO3 BT: AP Difficulty: Easy TOT: 6 min. AACSB: Analytic AICPA FC: Reporting IMA: Cost Management [$5,000 + (($10,000 + $98,000 - $14,000) + $80,000 + $160,000) - $3,500 = $335,500] [Beg. WIP + ((Beg. raw mat. + Raw mat. purch. – End. raw mat.) + DL + MOH) – End. WIP = COGM] DO IT! 1.4 1. f 2. a 3. c 4. d 5. e 6. b 7. g LO4 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: None IMA: Cost Management SOLUTIONS TO EXERCISES EXERCISE 1.1 1. False. Financial accounting focuses on providing information to external users. 2. False . Line positions are directly involved in the company's primary revenue -generating operating activities. 3. False. Preparation of budgets is part of managerial accounting. 4. False. Managerial accounting applies to service , merchandising and manufacturing c ompanies. 5. True. 6. False. Managerial accounting reports are prepared as frequently as needed . 7. True. 8. True. 9. False. Financial accounting reports must comply with generally accepted accounting principles. 10. False. The company treasurer repor ts directly to the vice president of finance/chief financial officer . LO1 BT: C Difficulty: Easy TOT: 6 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management EXERCISE 1.2 1. (c) Manufacturing overhead. 2. (c) Manufacturing overhead. 3. (c) Manufacturing overhead. 4. (c) Manufacturing overhead. 5. (a) Direct materials. 6. (b) Direct labor. 7. (c) Manufacturing overhead. 8. (c) Manufacturing overhead. 9. (c) Manuf acturing overhead. 10. (a) Direct materials. LO2 BT: C Difficulty: Easy TOT: 6 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management EXERCISE 1.3 (a) Bicycle components ............... DM Advertising expense .............. Period Depreciat ion on factory ....... MOH Property taxes on factory ......... MOH Property taxes on retail store ....................... Period Customer delivery expense ................................ ... Period Labor costs of assembly - line workers ............................ DL Sales commissions ................ Period Salaries paid to sales clerks .. Period Factory suppl ies used ......... MOH (b) Product costs are recorded as a part of the cost of inventory because they are an integral part of the cost of producing the bicycles . Product costs are not expensed until the bicycles are sold. Period costs are recognized as an expens e when incurred. LO2 BT: C Difficulty: Easy TOT: 8 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management EXERCISE 1.4 (a) Factory utilities ................................ ................................ ....... $ 15,500 Depreciation on factory equipment ................................ ....... 12,650 Indirect factory labor ................................ .............................. 48,900 Indirect materials ................................ ................................ .... 80,800 Factory manager’s salary ................................ ...................... 8,000 Property taxes on factory building ................................ ........ 2,500 Factory repairs ................................ ................................ ....... 2,000 Manufacturing overhead ................................ ........................ $170, 350 ($15,500 + $12,650 + $48,900 + $80,800 + $8,000 + $2,500 + $2,000 = $170,350) (Fact. util. + Depr. on fact. equip. + Ind. fact. labor + Ind. mat. + Fact. mgr’s. sal. + Prop. tax. on fact. bldg.. + Fact. repairs = MOH) (b) Direct materials used ................................ ............................. $137,6 00 Direct labor ................................ ................................ ............. 69,100 Manufacturing overhead ................................ ........................ 170,350 Product costs ................................ ................................ ......... $377,050 (c) Depreciation on delivery trucks ................................ ............ $ 3,800 Sales salaries ................................ ................................ ......... 46,400 Repairs to office equipment ................................ .................. 1,300 Advertising ................................ ................................ ............. 15,000 Office supplies used ................................ .............................. 2,640 Period costs ................................ ................................ ........... $ 69,14 0 ($3,800 + $46,400 + $1,300 + $15,000 + $2,640 = $69,140) (Depr. on del. trks. + Sales sal. + Repairs on off. equip. + Advert. + Off. sup. used = Period costs) LO2 BT: AP Difficulty: Easy TOT: 10 min. AACSB: Analytic AICPA FC: Measurement , Analysis a nd Interpretation IMA: Cost Management EXERCISE 1.5 1. 2. (c) (c) 3. 4. (a) (c) 5. 6. (c) (d) 7. 8. (a) (b) 9. 10. (c) (c) LO2 BT: C Difficulty: Easy TOT: 5 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management EXERCISE 1.6 1. (b) 2. (c) 3. (a) 4. (c) (Only for the portion that applies to the X-ray department) 5. (c) 6. (c) 7. (c) 8. (c) 9. (c) 10. (c) (Only for the portion that applies to the X-ray department) LO2 BT: C Difficulty: Easy TOT: 5 min. AACSB: None AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management EXERCISE 1.7 (a) Delivery service (product) costs: Indirect materials $ 6,400 Depreciation on delivery equipment 11,200 Dispatcher’s salary 5,000 Gas and oil for delivery trucks 2,200 Drivers’ salaries 16,000 Delivery equipment repairs 300 Total $41,100 ($6,400 + $11,200 + $5,000 + $2,200 + $16,000 + $300 = $41,100) (Ind. mat. + De pr. on del. equip. + Dispatch. s al. + Gas & oil for del. trks. + Drivers’ sal. + Del. equip. repairs = Tot. product costs) (b) Period costs: Property taxes on office buil ding $ 870 CEO’s salary 12,000 Advertising 4,600 Office supplies 650 Office utilities 990 Repairs on office equipment 180 Total $19,290 LO2 BT: AP Difficulty: Easy TOT: 6 min. AACSB: Analytic AICPA FC: Measurement , Analysis an d Interpretation IMA: Cost Management EXERCISE 1.8 Manufacturing Non manufacturing Product or Period Direct Materials Direct Labor Manufacturing Overhead Broom inspector’s salaries X Product Copy machine maintenance - headquarters X Period Assembly worker hourly wages X Product Research and development for new broom types X Period Factory manager’s salary X Product Depreciation -broom assembly equipment X Product CEO administrative assistant’s salary X Period Wood for hand les X Product Cleaning supplies - factory X Product Lubricants for factory broom assembly equipment X Product Customer service agents' salaries X Period Factory maintenance crew salaries X Product Sales team golf outings with customers X Period Raw materials receiving department salaries X Product Advertising X Period Depreciation -CFO company car X Period Straw for brooms X Product Salespersons’ salaries X Period Shipping costs to customers X Period LO2 BT: C Difficulty: Easy TOT: 10 min. AACSB: None AICPA FC: Measurement, Analysis and Interpretation IMA: Cost Management EXERCISE 1.9 (a) Work in process, January 1 .................... $ 12,000 Direct materials used .............................. $120,000 Direct labor ................................ .............. 110,000 Manufacturing over head Depreciation on factory ................... $60,000 Factory supplies used ..................... 23,000 Property taxes on factory ................ 14,000 Total manufacturing overhead ............... 97,000 Total manufacturing costs ...................... 327,000 Total cost of work in process ................. 339,000 Less: Work in proces s, December 31 .... 15,500 Cost of goods manufactured .................. $323,500 [$12,000 + (($120,000 + $110,000 + ($60,000 + $23,000 + $14,000)) - $15,500 = $323,500] [Beg. WIP + ((DM used + DL + (Depr. on factory + Fact. sup. used + Prop. tax on factory )) – End. WI P = COGM] (b) Finished goods, Jan. 1 ............................ $ 60,000 Cost of goods manufactured ................. 323,500 Cost of goods available for sale ............. 383,500 Less: Finished goods, inventory, Dec. 31 45,600 Cost of goods sold ................................ .. $337,900 (c) The costs not include in either the Schedule of Cost of Goods Manufactured or the Schedule of Cost of Goods sold are: Property taxes on store, Advertising expense, Delivery expense, Sales commissions, and Salaries paid to sales clerks. They would all be classified as period costs , and as such, would be reported on the income statement under operating expenses. LO3 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Analytic AICPA FC: Reporting IMA: Cost management EXERCISE 1.10 Total raw materials available for use: Direct materi als used ................................ ....................... $180,000 Add: Raw materials inventory , Dec. 31 ......................... 22,500 Total raw materials available for use .............................. $202,500 ($180,000 + $22,500 = $202,500) (DM used + End. raw mat. = Tot. raw mat. avail. for use) EXERCISE 1.10 (Continued) Raw materials inventory (Jan. 1 ): Total raw materials available for use: Direct materials used ................................ ........................ $180,000 Add: Raw materials inventory , Dec. 31 ......................... 22,500 Total raw materials available for use ............................... 202,500 Less: Raw materials purchases ................................ ...... 158,000 Raw materials inventory , Jan. 1 ................................ ...... $ 44,500 ($180,000 + $22,500 - $158,000 = $44,500) (DM used + End. raw mat. – Raw mat. purch. = Beg. raw mat.) Total cost of work in process: Cost of goods manufactured ................................ ........... $540,000 Add: Work in process , Dec. 31 ................................ ........ 81,000 Total cost of work in process ................................ .......... $621,000 Total manufa cturing costs: Total cost of work in process ................................ . $621,000 Less: Work in process , Jan. 1 ................................ . 210,000 Total manufacturing costs ................................ ...... $411,000 Direct labor: Total manufacturing costs ................................ ...... $411,000 Less: Total manufacturing overhead ...................... $122,000 Direct materials u sed ................................ .... 180,000 302,000 Direct labor ................................ ............................... $109,000 [$411,000 – ($122,000 + $180,000) = $109,000] [Tot. mfg. costs – (Tot. MOH + DM used) = DL] LO3 BT: AP Difficulty: Easy TOT: 10 min. AACSB: Analytic AICPA FC: Reporting IMA: Reporting EXERCISE 1.11 Case A a + $57,000 + $46,500 = $195,650 $252,500 – $11,000 = f a = $92,150 f = $241,500 Case C $195,650 + b = $221,500 $130,000 + g + $102,000 = $253,700 b = $25,850 g = $21,700 EXERCISE 1.11 (Continued) $221,500 – c = $185,275 $253,700 + h = $337,00 0 c = $36,225 h = $83,300 Case B $68,400 + $86,000 + $81,600 = d $337,000 – $70,000 = i d = $236,000 i = $267,000 $236,000 + $16,500 = e e = $252,500 Additional explanation to EXERCISE 1.11 solution: Case A (a) Total manufacturing costs ................................ ...... $195,650 Less: Manufacturing overhead ............................... $46,500 Direct labor ................................ .................... 57,000 103,500 Direct materials used ................................ .............. $ 92,150 [$195,650 – ($46,500 + $57,000) = $92,150] [Tot. mfg. costs – (MOH + DL) = DM used] (b) Total cost of work in process ................................ . $221,500 Less: Total manufa cturing costs ............................ 195,650 Work in process (1/1/ 22) ................................ .......... $ 25,850 (c) Total cost of work in process ................................ . $221,500 Less: Cost of goods manufactured ........................ 185,275 Work in process (12/31/ 22) ................................ ...... $ 36,225 Case B (d) Direct materials used ................................ .............. $ 68,400 Direct labor ................................ ............................... 86,000 Manufacturing overhead ................................ ......... 81,600 Total manufacturing costs ................................ ...... $236,000 ($68,400 + $86,000 + $81,600 = $236,000) (DM used + DL + MOH = Tot. mfg. costs) (e) Total manufacturing costs ................................ ...... $236,000 Work in process (1/1/ 22) ................................ .......... 16,500 Total cost of w ork in process ................................ . $252,500 EXERCISE 1.11 (Continued) (f) Total cost of work in process ................................ . $252,500 Less: Work in process (12/31/ 22) ............................ 11,000 Cost of goods manufactured ................................ .. $241,500 Case C (g) Total manufacturing costs ................................ ...... $253,700 Less: Manufacturing o verhead .............................. $102,000 Direct materials used ................................ ... 130,000 232,000 Direct labor ................................ ............................... $ 21,700 [$253,700 – ($102,000 + $130,000) = $21,700] [Tot. mfg. costs – (MOH + DM used) = DL] (h) Total cost of work in process ................................ . $337,000 Less: Total manufacturing costs ............................ 253,700 Work in process (1/1/ 22) ................................ .......... $ 83,300 (i) Total cost of work in process ................................ . $337,000 Less: Work in process (12/31/ 22) ............................ 70,000 Cost of goods manufactured ................................ .. $267,000 LO3 BT: AN Difficulty: Easy TOT: 12 min. AACSB: Analytic AICPA FC: Reporting IMA: Reporting EXERCISE 1.12 (a) (a) $117,000 + $140,000 + $87,000 = $ 344,000 (b) $344,000 + $33,000 – $360,000 = $ 17,000 ($344,000 + $33,000 - $360,000 = $17,000) (Tot. mfg. costs + Beg. WIP – COGM = End. WIP) (c) $450,000 – ($200,000 + $132,000) = $118,000 (d) $40,000 + $470,000 – $450,000 = $60,000 ($40,000 + $470,000 - $450,000 = $60,000) (End. WIP + COGM – Tot. mfg. costs = Beg. WIP) (e) $265,000 – ($80,000 + $100,000) = $ 85,000 (f) $265,000 + $60,000 – $80,000 = $ 245,000 ($265,000 + $60,00 0 - $80,000 = $245,000) (Tot. mfg. costs + Beg. WIP – End. WIP = COGM) (g) $288,000 – ($70,000 + $75,000) = $143,000 (h) $288,000 + $45,000 – $270,000 = $63,000 EXERCISE 1.12 (Continued) (b) HORIZON COMPANY Cost of Goods Manufactured Schedule For th e Year Ended December 31, 2022 Work in process, Jan . 1 ................................ ...... $ 33,000 Direct materials used ................................ ......... $117,000 Direct labor ................................ .......................... 140,000 Manufacturing overhead ................................ .... 87,000 Total manufacturing costs ......................... 344,000 Total cost of work in process ............................ 377,000 Less: Work in process inventory, Dec. 31 ................................ ...................... 17,000 Cost of goods m anufactured ............................. $360,000 [($33,000 + ($117,000 + $140,000 + $87,000)) - $17,000 = $360,000] [(Beg. WIP + (DM + DL + MOH)) – End. WIP = COGM] LO3 BT: AN Difficulty: Easy TOT: 12 min. AACSB: Analytic AICPA FC: Reporting IMA: Reporting EXERCISE 1.13 (a) CEPEDA CORPORATION Cost of Goods Manufactured Schedule For the Month Ended June 30, 2022 Work in process, June 1 ............................. $ 3,000 Direct materials used ................................ . $20,000 Direct labor ................................ .................. 40,000 Manufacturing overhead Indirect factory labor .......................... $4,500 Factory manager’s salary ................... 3,000 Indirect materials used ....................... 2,200 Maintenance, factory equipment ........ 1,800 Depreciation, factory e quipment ........ 1,400 Factory utilities ................................ .... 400 Total manufacturing overhead ... 13,300 Total manufacturing costs ......................... 73,300 Total cost of work in process .................... 76,300 Less: Work in process, June 30 ............... 3,800 Cost of goods manufactured ..................... $72,500 [($3,000 + ($20,000 + $40,000 + ($4,500 + $3,000 + $2,200 + $1,800 + $1,400 + $400))) - $3,800 = $72,500] [(Beg. WIP + (DM used + DL + (Ind. labor + Fact. mgrs.. sal. + Ind. mat. used + Maint., fact. equip. + Depr., fact. equip. + Fact. util.))) – End. WIP = CO GM] EXERCISE 1.1 3 (Continued) (b) CEPEDA CORPORATION Income Statement (Partial) For the Month Ended June 30, 2022 Sales revenue ................................ .......................... $92,100 Cost of goods sold Finished goods inventory, June 1 .................. $ 5,000 Cost of goods manufactured [from (a)] ......... 72,500 Cost of goods available for sale ..................... 77,500 Less: Finished goods inventory, June 30 .... 7,500 Cost of goods sold ......................... 70,000 Gross profit ................................ ............................. $22,100 LO3 BT: AP Difficulty: Easy TOT: 10 min. AACS B: Analytic AICPA FC: Reporting IMA: Reporting EXERCISE 1.14 (a) WASHINGTON CONSULTING Schedule of Cost of Contract Services Performed For the Month Ended August 31, 2022 Supplies used (direct materials) ................................ ... $ 1,700 Salaries of professionals (direc t labor) ........................ 15,600 Service overhead: Utilities for contract operations ............................... $1,400 Contract equipment depreciation ............................ 900 Insurance on contract operations ........................... 800 Janitorial services for professional offices ............. 700 Total overhead ................................ .................... 3,800 Total cost of contract services provided ................ $21,100 [$1,700 + $15,600 + ($1,400 + $900 + $800 + $700) = $21,100] [Supp. used + Sal. of profs. + (Util. on contract oper. + Contract equip. depr. + Ins. on contract oper. + Jan. srvs. for prof. off.) = $21,100] (b) The costs not included in the Schedule of Cost of Contract Services Performed are: Supplies used in administrative offices, Depreciation used on administrative office equipment, Salaries of administrative office personnel, Janitorial services for adm inistrative offices, Insurance on administrative operations, and Utilities for administrative offices. They would all be classified as period costs , and as such, they would be reported on the income statement under administrative expenses. LO2, 3 BT: AP Difficulty: Easy TOT: 6 min. AACSB: Analytic AICPA FC: Reporting IMA: Reporting EXERCISE 1.15 (a) Work in process, Jan. 1 ........................ $ 13,500 Direct materials Raw m aterials inventory, Jan. 1 ..... $ 21,000 Raw m aterials purchased ............... 150,000 Raw m aterials available for use ..... 171,000 Less: Raw m aterials inventory, Dec. 31 ................................ ............. 30,000 Direct materials used ............................. $141,000 Direct labor ................................ ............. 220,000 Manufacturing overhead ........................ 180,000 Total manufacturing costs ..................... 541,000 Total cost of work in process ................ 554,500 Less: Work in process, Dec. 31 ............. 17,200 Cost of goods manufactured ................. $537,300 [$13,500 + (($21,000 + $150,000 - $30,000) + $220,000 + $180,000) - $17,200 = $537,300] [Beg. WIP + ((Beg. RM + RM purch. – End. RM) + DL + MOH) – End. WIP = COGM] AIKMAN COMPANY Income Statement (Partial) For the Year Ended December 31, 2022 (b) Sales revenue ................................ ....... $910,000 Cost of goods sold Finished goods inventory , Jan. 1 .... $ 27,000 Cost of goods manufactured [From (a)] 537,300 Cost of goods availab le for sale ...... 564,300 Less: Finished goods inventory , Dec. 31 ............................. 21,000 Cost of goods sold ................ 543,300 Gross profit ................................ ............ $366,700 [$910,000 – ($27,000 + $537,300 - $21,000) = $366,700] [Sales rev. – (Beg. FG inv. + COGM – End. FG inv.) = GP] EXERCISE 1. 15 (Continued) AIKMAN COMPANY Balance Sheet (Partial) December 31, 2022 Assets (c) Current assets Inventories Finished goods ................................ ............... $21,000 Work in process ................................ ............ 17,200 Raw materials ................................ ................. 30,000 $68,200 (d) In a merchandising company’s inc ome statement (using the periodic inventory system) , the only difference would be in the computation of cost of goods sold. Beginning and ending finished goods inventory would be replaced by beginning and ending inve ntory, and cost of goods manufactured wo uld be replaced by purchases. In a merchandising company’s balance sheet, there would be one inventory account (inventory) instead of three. LO3 BT: AP Difficulty: Easy TOT: 15 min. AACSB: Analytic AICPA FC: Reporting IMA: Reporting EXERCISE 1.16 1. (a) 9. (a) 2. (a) 10. (a), (b) 3. (a), (c) 11. (b) 4. (b) 12. (b) 5. (a) 13. (a) 6. (a) 14. (a) 7. (a) 15. (a) 8. (b), (c) 16. (a) LO3 BT: C Difficulty: Easy TOT: 8 min. AACSB: None AICPA FC: Reporting IMA: Reporting EXERCISE 1.17 (a) ROBERTS COMPANY Cost of Goods Manufactured Schedule For the Month Ended June 30, 2022 Work in process inventory, June 1 ............... $ 5,000 Direct materials Raw materials inventory, June 1 ............ $ 9,000 Raw materials purchases ....................... 54,000 Total raw materials available for u se ..... 63,000 Less: Raw materials inventory, June 30 13,100 Direct materials used .............................. $49,900 Direct labor ................................ ..................... 47,000 Manufacturing overhead Indirect labor ................................ ........... 5,500 Factory insurance ................................ ... 4,000 Machinery depreciation .......................... 4,000 Factory utilities ................................ ........ 3,100 Machinery repairs ................................ .... 1,800 Miscellaneous factory costs ................... 1,500 Total manufacturing overhead ....... 19,900 Total manufacturing costs ............................ 116,800 Total cost of work in process ....................... 121,800 Less: Work in process inventory, June 30 . 7,000 Cost of goo ds manufactured ........................ $114,800 [$5,000 + (($9,00 0 + $54,000 - $13,100) + $47,000 + ($5,500 + $4,000 + $4,000 + $3,100 + $1,800 + $1,500) ) – $7,000 = $114,800] [Beg. WIP + (( Beg. raw mat. + Raw mat. purch. – End. raw mat.) + DL + (Ind. labor + Fact. ins. + Mac h. depr. + Fact. util. + Mach. repairs + Misc. fact. costs)) – End. WIP = COGM] (b) ROBERTS COMPANY Balance Sheet (Partial) June 30, 2022 ASSETS Current assets Inventories Finished goods ................................ ........... $ 8,000 Work in process ................................ .......... 7,000 Raw materials ................................ ............. 13,100 $28,100 LO3 BT: AP Difficulty: Easy TOT: 8 min. AACSB: Analytic AICPA FC: Reporting IMA: Reporting EXERCISE 1.18 (a) Raw Materials account: (5,000 – 4,650) x $15 = $5,250 Work in Process account: (4,600 x 10%) x $15 = $6,900 Finished Goods account: (4,600 x 90% x 30%) x $15 = $18,630 Cost of Goods Sold account: (4,600 x 90% x 70%) x $15 = $43,470 Selling Expenses account: 50 x $15 = $750 Proof of cost of head lamps allocated (5,000 x $15 = $75,000) Raw materials $ 5,250 Work in process 6,900 Finished goods 18,630 Cost of goods sold 43,470 Selling expenses 750 Total $75,000 [(Raw mat.: (5,000 – 4,650) x $15 = $5,250); (WIP: 4,600 x 10% x $15 = $6,900); (Fin. gds.: (4,600 x 90% x 30%) x $15 = $18,630); (CGS: (4,600 x 90% x 70%) x $15 = $43,470); (Sell. exp.: 50 x $15 = $750)] [(Raw mat.: (Lamps purch. – Lamps withdrawn) x Unit cost = Acct. bal.); (WIP: (Lamps issued to production x % still in production) x Uni t cost = Acct. bal.); (Fin. Gds.: (Lamps in production x % completed x % not sold) x Unit cost = Acct. bal.); (CGS: Lamps in production x % completed x % sold) x Unit cost = Acct. bal.); (Sell. exp.: Lamps in sales staff cars x Unit cost = Acct. bal.)] (b) To: Chief Accountant From: Student Subject: Statement Presentation of Accounts Two accounts will appear in the income statement. Cost of Goods Sold will be deducted from net sales in determining gross profit. Selling e x- penses will be shown unde r operating expenses and will be deducted from gross profit in determining net income. Sometimes, the calculation for Cost of Good s Sold is shown on the income statement. In these cases, the balance in Finished Goods inventory would also be reported on the income stat ement. The other accounts associated with the head lamps are inventory a c- counts which contain end -of-period balances. Thus, they would be reported under inventories in the current assets section of the balance sheet in the following order: f inished goods, work in pro cess, and raw mater ials. LO3 BT: AP Difficulty: Moderate TOT: 15 min. AACSB: Analytic AICPA FC: Measurement , Analysis and Interpretation IMA: Cost Management EXERCISE 1.19