(Solution Manual) Managerial Accounting Tools for Business Decision Making

Weygandt, Kieso, Kimmel, 2

Business

Solution Manual

2nd Edition

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Solution Manual for Managerial Accounting Tools for Business Decision Making, The downloadable file consists of 765 pages, and the total size of the file is 5.99 MB. Purchase now only for highly discounted price.

Author(s): Weygandt, Kieso, Kimmel

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SOLUTIONS MANUAL to accompany MANAGERIAL ACCOUNTING Tools for Business Decision Making 2ND Edition Jerry J. Weygandt PhD, CPA Arthur Andersen Alumni Professor of Accounting University of Wisconsin Madison, Wisconsin Donald E. Kieso PhD, CPA KPMG Peat Marwick Emeritus Professor of Accountancy Northern Illinois University DeKalb, Illinois Paul D. Kimmel PhD, CPA Associate Professor of Accounting University of Wisconsin --Milwaukee Milwaukee, Wisconsin John Wiley & Sons, Inc. COVER PHOTO © Ron Behrmann/International Stock. To order books or for customer service call 1-800-CALL -WILEY (225-5945). Copyright © 2002 by John Wiley & Sons, Inc. Excerpts from this work may be reproduced by instructors for distribution on a not -for-profit basis for testing or instructional purposes only to students enrolled in courses for which the textbook has been adopted. Any other reproduction or translation of this work beyond that permitted by Sections 107 or 108 of the 1976 United States Copyright Act without the permission of the copyright owner is unlawful. Requests for permission or further information should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158 -0012. ISBN 0-471-41641 -X Printed in the United States of America 1 0 9 8 7 6 5 4 3 2 1 Printed and bound by Victor Graphics, Inc. iii Contents Preface to the Instructor Supplementary Materials and Teaching Aids Chapter 1 Managerial Accounting Chapter 2 Job Order Cost Accounting Chapter 3 Process Cost Accounting Chapter 4 Activity -Based Costing Chapter 5 Cost -Volume -Profit Relationships Chapter 6 Budgetary Planning Chapter 7 Budgetary Control and Responsibility Accounting Chapter 8 Performance Evaluation Through Standard Costs Chapter 9 Incremental Analysis Chapter 10 Capital Budgeting Chapter 11 Pricing Decisions Chapter 12 Statement of Cash Flows Chapter 13 Financial Statement Analysis Appendix C Time Value of Money Solutions to Cases for Management Decision Making Comprehensive CD Problem: Chapters 1 to 11 iv Preface to the Instructor The presentation of the subject matter of the thirteen chapters in Managerial Accounting, Second Edi- tion is followed by questions, brief exercises, exercises, problems, a group decision case, a managerial analysis problem, a real-world focus problem, an exploring the Web assignment, a communication activity, a research assignment, an ethics case, and a set of five comprehensive cases in an appendix (at the back of the book). This Solutions Manual contains suggested answers to the questions and complete solutions to all of these assignment items. Assignment Classification Table. A unique feature of our Solutions Manual is a table that categorizes the end-of-chapter items (questions, brief exercises, exercises, problems, and alternative problems) by study objectives in each chapter. Assignment Characteristics Table. Each chapter of this Solutions Manual contains a table offering: (1) a short description of each problem and alternative problem, (2) an indication of the level of difficulty (simple, moderate, or complex), and (3) the estimated time in minutes. Bloom's Taxonomy Table. Each chapter features a correlation chart showing the relationship between Bloom’s taxonomy of learning and study objective for each end-of-chapter item, allowing for more targeted assignments and assessment. Questions. The questions at the end of each chapter provide a basis for classroom discussion of the topics presented in the chapter and serve as an aid to the students in testing their understanding of the text materials. They deal with both conceptual and procedural matters. The sequence of questions gen- erally corresponds to the topical coverage in the text. Full and complete answers to these questions are presented in this manual. Brief Exercises. Each brief exercise focuses on one of the study objectives listed at the beginning of the chapter. Because these brief exercises are straightforward and simple, they build the student’s confidence and test basic skills. Exercises. Generally, the exercises cover a specific topic and require less time and effort to solve than the problems. In addition to serving as supplemental assignment material, the exercises may be used for class discussion and for examination purposes. Problems. Whereas the goal of the exercises is brevity of solution time and coverage of essential prin- ciples or methodology with minimum difficulty, the problems are designed to develop a professional level of achievement and, therefore, are generally more challenging to solve. We have arranged the problems, as much as possible, in the same order as the discussion in the chapter. Some of the problems are rou- tine and can be solved by following procedures that are illustrated in the text. The more difficult problems may blend a diversity of principles into a single situation requiring a series of steps, computations, or solu- tions and demand interpretation, analysis, and judgment. Additionally, a far greater number of problems has been provided than the instructor can reasonably use in a single offering of the course. An alternative set of problems similar in nature and coverage to the first set of problems is provided so that assignments similar in coverage and difficulty can be varied from semester to semester. v Broadening Your Perspective Group Decision Cases. These cases help students build decision -making skills by analyzing accounting information in a less structured situation. These cases require evaluation of a manager’s decision, or they lead to a decision among alternative courses of action. As group activities, these cases prepare students for the business world, where they will be working with teams of people, by giving them practice in solving problems with colleagues. Managerial Analysis. Managerial analysis assignments build analytical and decision -making skills in problematic situations encountered by business managers. They also require the application of business communication skills. Real-World Focus. Each chapter has a real-world case taken from the current business literature (news - papers, magazines, books, and annual reports). These assignments require the student to apply concepts, methods, and techniques they have learned from the chapter to specific situations and problems faced by actual companies. Exploring the Web. Each chapter has an exploring the Web assignment that allows students to find and analyze information related to a chapter topic on various Web sites. Communication Activities. In each chapter, the authors have integrated writing assignments in the end- of-chapter exercises and problems. These writing assignments are highlighted by the yellow pencil icon at the beginning of the relevant instruction. In addition, every chapter contains a separate communication assignment in the Broadening Your Perspective section. These communication assignments require that the student write a memo, letter, or report to a designated person or audience. Research Assignment. A research assignment in each chapter requires the student to find the source of data in a publication or in an annual report and then interpret or analyze the data and discuss its signif - icance. Ethics Cases. The ethics case sensitizes the student to ethical situations in a business or accounting en- vironment. The student is asked to identify the stakeholders (affected parties) in each case as well as the ethical considerations and issues involved. In some cases the student must evaluate the consequences of several alternative courses of action from an ethical viewpoint. Acknowledgments We sincerely thank the following individuals for their expert assistance in reviewing and checking the ma- terial contained in this Solutions Manual: John Borke, University of Wisconsin —Platteville; Larry Falcetto, Emporia State University ; Teresa Speck, St. Mary’s University; and Dick Wasson, Southwestern College. We also wish to recognize the creative talents of Thomas L. Zeller, Loyola University Chicago; Jessica Frazier, Eastern Kentucky University; and Patricia Mounce, Mississippi College in developing the compre - hensive cases for Management Decision Making. vi We also greatly appreciate the composition provided by Mary Ann Benson and the composition, proofing, and editorial assistance provided by Jennifer Wood and other staff members of Elm Street Publishing Ser- vices, Inc., and by Ed Brislin, our supplements editor at John Wiley & Sons, Inc. Jerry J. Weygandt Donald E. Kieso Paul D. Kimmel vii Active -Teaching and Learning Supplementary Material Managerial Accounting features a full line of teaching and learning resources developed and revised to help you create a more dynamic and innovative learning environment. The success of students is a major theme of the entire supplements package. Vital current topics such as communication skills, critical thinking and decision making, ethics, technology, and real-world emphasis are integrated throughout. These resources —including print, software, and Web-based materials —also take an active learning approach to help build students’ skills and analytical abilities. The Managerial Accounting Web Site. http://www.wiley.com/college/weygandt . As a resource and learning tool for instructors and students, the Web site serves as a launching pad to numerous activities, resources, and related sites. New to this edition are Demonstration Problems and Problems for students powered by eGrade . eGrade allows students to work on an endless amount of variations of the same prob- lem while providing immediate feedback on the answers. Users will also find links to companies discussed in the text and Instructor’s Manual, interactive Self- Study Questions and Tests, PowerPoint, a link to Business Extra, and much more. All of the instructor’s materials will be available in a password -protected portion of the site. Instructor's Active -Teaching Aids For the instructor, we have designed an extensive support package to help you maximize your teaching effectiveness, including print and technology tools. We offer useful supplements for instructors with vari- ous levels of experience and different instructional circumstances. Instructor's Resource System on CD-ROM. Responding to the changing needs of instructors and to developments in distance learning and electronic classrooms, a CD -ROM supplement provides all the instructor support material in an electronic format that is easy to navigate and use. In particular, it contains the Solutions Manual, Instructor’s Manual, Test Bank, Excel Problem Solutions, Computerized Test Bank, Checklist, PowerPoint Slides, Teaching Transparencies, and Text Art. This CD-ROM was prepared for use in the classroom, for printing out material, for uploading to your own Web site, or for downloading and modifying. It gives you the flexibility to access and prepare instructional material based on your individual needs. Solutions Manual. The Solutions Manual contains detailed solutions to all exercises and problems in the textbook and suggested answers to the questions and cases. Print is large and bold for easy read - ability in lecture settings, and instructors may duplicate any portion of the manual without paying a per- missions fee. Each chapter includes an assignment classification table (identifies end -of-chapter items by study objectives), an assignment characteristics table (describes each problem), and a Bloom’s taxon - omy table (classifies end-of-chapter items by Bloom’s taxonomy of learning objective and study objective). (Also available on Instructor’s Resource CD and at http://www.wiley.com/college/weygandt ) Solution Transparencies. Packaged in an organizer box with chapter file folders, these transparencies feature detailed solution s to all exercises and problems in the textbook, and suggested answers to the cases. They feature large, bold type for better projection and easy readability in large classroom settings. Accuracy is assured —all solutions were extensively checked by the authors and reviewers. viii Instructor's Manual. The Instructor’s Manual is a comprehensive resource guide designed to assist pro- fessors in preparing lectures and assignments, and includes a sample syllabus for preparing the course. The print is set in a size large enough for easy reading or use as transparency masters. Included for each chapter are an assignment classification table; an assignment characteristics table; a list of study objectives in extra -large, boldface print for transparencies; a chapter review of the signifi - cant topics and points contained in the chapter; enhanced lecture outlines with teaching tips and refer - ences to text material; suggestions for integrating supplements into the classroom; a 20-minute quiz in the form of 10 true/false and 5 multiple -choice questions (with solutions); and illustrations, including dia- grams, graphs, questions, and exercises, for use as classroom handouts, overhead transparencies, in-class quizzes or demonstrations (solutions are provided). (Also available on Instructor’s Resource CD and at http://www.wiley.com/college/weygandt ) WebCT and Blackboard Courses. WebCT and Blackboard Courses are available with Managerial Accounting, Second Edition. These course management systems are tools that facilitate the organization and development of course materials on the Web. Easy to use, they provide powerful communication, loaded content, easy and flexible course administration, and sophis ticated online testing and diagnostic systems. Teaching Transparencies. Teaching Transparencies are graphs, tables, and charts designed to enhance classroom lectures. These four-color transparencies support and clarify concepts in the text. Some of the transparencies replicate those found in the text, while others are from outside sources. The Instructor’s Manual offers suggestions on how to effectively integrate the transparencies into a lecture. Examination Book and Test Bank. The Examination Book and Test Bank is a comprehensive testing package that allows instructors to tailor examinations according to study objectives, learning skills, and con- tent. A main feature of this supplement is the revised Test Bank that, with the inclus ion of 15% more mul - tiple-choice questions and two new exercises for each chapter, now totals over 800 examination ques - tions and exercises accompanied by solutions. This revision of the Test Bank still includes the helpful Summary of Questions by Objectives and Summary of Objectives by Questions , tools effective in linking test items to study objectives. Each chapter also includes a chart indicating the placement of questions in Bloom’s taxonomy. An estimated completion time for each question and exercise is also provided. The Examination Book and Test Bank provides an achievement test and solutions bank for every two chapters in the textbook. Three comprehensive tests and a final exam are also provided. The tests, easy to photocopy and distribute to students, consist of problems and exercises as well as multiple -choice, matching, and true/false questions. (Al so available on Instructor’s Resource CD and at http://www.wiley. com/college/weygandt ) Computerized Test Bank. MicroTest is a computerized version of the Managerial 2e Test Bank that is available for use with PCs running Windows 3.1 or higher. MicroTest allows instructors to create and print multiple versions of the same test by scrambling the order of all the different types of questions found in the Test Bank. MicroTest even allows authors to scramble answers within a particular multiple -choice question. Scrambling can be done randomly or manually. Furthermore, professors can modify and cus- tomize test questions by changing existing problems or adding their own. Once a test is created, the test can also be imported into a Word file. (Also available on Instructor’s Resource CD and at http://www.wiley. com/college/weygandt ) Test Preparation Service. Simply call Wiley’s special number (1-800-541-5602) with the questions you want on an examination. Wiley will provide a customized master exam within 24 hours. If you prefer, random selection from a number of chapters is possible. ix Checklist of Key Figures. A listing of key amounts for textbook problems, allowing students to verify the accuracy of their answers as they work through the assignments, is available on Instructor’s Resource CD and at http://www.wiley.com/college/weygandt . PowerPoint Presentation Material. This electronic lecture aid, which completely revamps the style and content of the prior edition’s slides, contains a combination of key concepts, images, and problems from the textbook for use in the classroom. Designed to follow the organization and style of the textbook, this dynamic series of electronic transparencies can be used to reinforce accounting principles visually and graphically. (Also available on Instructor’s Resource CD and at http://www.wiley.com/college/weygandt ) Nightly Business Report Video. This video contains segments from the highly respected Nightly Busi - ness Report that have been selected for their applicability to managerial accounting and for their rein - forcement of key concepts in the text. Each of the segments is approximately 3–5 minutes long and can be used to introduce topics to the students, enhance lecture material, and provide real-world context for related concepts. An Instructor’s Manual with suggestions for integrating the material into the classroom accompanies the video. Student Active -Learning Aids Student Study Guide. The Student Study Guide is a comprehensive review of accounting and a pow- erful tool for students to use in the classroom. For use inside or out of the classroom, it guides students through chapter content while relating the content to study objectives. This is an excellent resource when preparing for exams. Each chapter of the Student Study Guide includes study objectives and a chapter review consisting of 20–30 key points; a demonstration problem linked to study objectives in the textbook; and additional opportunities for students to practice their knowledge and skills through true/false, multiple -choice, and matching questions related to key terms and exercises linked to study objectives. Solutions to the exer- cises explain the hows and whys so students get immediate feedback. Working Papers. Working Papers are partially completed accounting forms for all end -of-chapter exer - cises, problems, and cases. A convenient resource for organizing and completing homework assignments, they demonstrate how to correctly set up solution formats and are directly tied to textbook assignments. Excel Working Papers. The Excel Working Papers CD compiles all the accounting forms you will need to successfully complete your study work for Managerial Accounting 2e . The templates on this CD can be found in the paperbound working papers and therefore include custom forms for all relevant end-of- chapter exercises, problems, and cases. The Excel Working Papers, however, provide you with the option of printing forms and completing them manually, or entering data electronically and then printing out a completed form. By entering data electronically, you can now paste homework into a new file and e-mail the worksheet to your instructor. On-Line Business Survival Guide in Accounting. The journey of 1,000 Web sites begins with one click, and this practical guide gets you on the road. The On-Line Business Survival Guide is a brief, clear intro- duction to using the World Wide Web as a business research tool. Starting with the basics, this manual covers everything your students need to know to become master sleuths at finding critical information on the Internet. In addition, the guide provides a hands -on resource to using The Wall Street Journal Inter- active Edition, as well as a discount offer for a subscription to The Wall Street Journal Interactive on-line. x Business Extra Web Site at http://www.wiley.com/college/businessextra . The Business Extra Web site gives you instant access to a wealth of current articles dealing with all aspects of financial and man- agerial accounting. The articles are organized by topic, and discussion questions follow each article. A password card, available for packaging with the text, provides students with registration and access instruction. Solving Manageria l Accounting Problems Using Excel. This workbook contains Excel templates that allow students to complete select end-of-chapter exercises and problems identified by a spreadsheet icon in the margin of the main text. A useful introduction to computers, this package details how students can work with preprogrammed spreadsheets and it instructs on how to design your own spreadsheet. The work- book and templates help students develop and hone their computer skills and effectively expose them to Excel, a software package often used in real-world business environments. Solutions available on Instruc - tor’s Resource CD and at http://www.wiley.com/college/weygandt . CHAPTER 1 Managerial Accounting ASSIGNMENT CLASSIFICATION TABLE Study Objectives Questions Brief Exercises Exercises A Problems B Problems 1. Explain the distinguish - ing features of manage - rial accounting. 1, 2, 3, 4 1, 2 2. Identify the three broad functions of manage - ment. 5, 6 3 3. Define the three classes of manufacturing costs. 9, 10 4, 5, 7 1, 2, 3 1A, 2A 1B, 2B 4. Distinguish between product and period costs. 11 6, 7 2, 3 1A, 2A 1B, 2B 5. Explain the difference 7, 12 4, 6, 7, 8, 3A, 4A, 5A 3B, 4B, 5B between a merchandis - ing and a manufacturing income statement. 9, 10 6. Indicate how cost of 13, 14, 15, 8, 10, 11 4, 5, 6, 7, 3A, 4A, 5A 3B, 4B, 5B goods manufactured is determined. 16 8, 9, 10 7. Explain the difference between a merchandis - ing and a manufacturing balance sheet. 8, 17, 20 9 4, 8, 10 3A, 4A 3B, 4B *8. Prepare a work sheet and closing entries for a manufacturing company. 18, 19, 20 12 11 6A *Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to the chapter. 1-1 1-2 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A Classify manufacturing costs into different categories and compute the unit cost. Simple 20-30 2A Classify manufacturing costs into different categories and compute the unit cost. Simple 20-30 3A Indicate the missing amount of different cost items; pre - pare a condensed cost of goods manufactured schedule, an income statement, and a partial balance sheet. Moderate 30-40 4A Prepare a cost of goods manufactured schedule, a par tial income statement, and a partial balance sheet. Moderate 30-40 5A Prepare a cost of goods manufactured schedule and a correct income statement. Moderate 30-40 *6A Complete a work sheet; prepare a cost of goods man - ufactured schedule, an income statement and a balance sheet; journalize and post the closing entries. Complex 40-50 1B Classify manufacturing costs into different categories and compute the unit cost. Simple 20-30 2B Classify manufacturing costs into different categories and compute the unit cost. Simple 20-30 3B Indicate the missing amount of different cost items; pre - pare a condensed cost of goods manufactured schedule, an income statement, and a partial balance sheet. Moderate 30-40 4B Prepare a cost of goods manufactured schedule, a partial income statement, and a partial balance sheet. Moderate 30-40 5B Prepare a cost of goods manufactured schedule and a correct income statement. Moderate 30-40 Correlation Chart between Bloom's Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems Study Objective Knowledge Comprehension Application Analysis Synthesis Evaluation 1. Explain the distinguishing fea - tures of managerial accounting. BE1-2 Q1-1 Q1-2 Q1-3 Q1-4 BE1-1 2. Identify the three broad functions of management. Q1-5 Q1-6 BE1-3 3. Define the three classes of manu - facturing costs. Q1-9 Q1-10 BE1-4 BE1-5 BE1-7 E1-1 E1-3 E1-2 P1-1A P1-2A P1-1B P1-2B 4. Distinguish between product and period costs. Q1-11 BE1-6 BE1-7 E1-3 E1-2 P1-1A P1-2A P1-1B P1-2B 5. Explain the difference between a merchandising and a manufactur - ing income statement. Q1-7 Q1-12 E1-4 E1-7 E1-8 E1-10 P1-4A P1-4B E1-6 E1-9 P1-3A P1-5A P1-3B P1-5B 6. Indicate how cost of goods manu - factured is determined. Q1-13 E1-4 Q1-14 Q1-15 Q1-16 BE1-8 E1-7 E1-8 E1-10 P1-4A P1-4B BE1-10 BE1-11 E1-5 E1-6 E1-9 P1-3A P1-5A P1-3B P1-5B 7. Explain the difference between a merchandising and a manufactur - ing balance sheet. Q1-17 Q1-8 Q1-20 E1-4 BE1-9 E1-8 E1-10 P1-4A P1-4B P1-3A P1-3B *8. Prepare a work sheet and closing entries for a manufacturing com - pany. Q1-19 Q1-18 Q1-20 BE1-12 E1-11 P1-6A Broadening Your Perspective Real -World Focus Research Assign. Group Decision Communication Managerial Analysis Exploring the Web Ethics Case 1-4 ANSWERS TO QUESTIONS 1. (a) Disagree. Managerial accounting is a field of accounting that provides economic and financial information for managers and other internal users. (b) Pat is incorrect. Managerial accounting applies to all types of businesses —service, merchan - dising, and manufacturing. 2. (a) Financial accounting is concerned primarily with external users such as stockholders, credi - tors, and regulatory agencies. In contrast, managerial accounting is concerned primarily with internal users such as officers, department heads, managers, and supervisors in the company. (b) Classified financial statements are the end product of financial accounting. The statements are prepared quarterly and annually. In managerial accounting, internal reports may be prepared daily, weekly, monthly, quarterly, annually, or as needed. (c) The purpose of financial accounting is to provide general -purpose information for all user s. The purpose of managerial accounting is to provide special -purpose information for a particu - lar user for a specific decision. 3. Differences in the content of the reports are as follows: Financial Managerial • Pertains to business as a whole and is high- ly aggregated. • Limited to double -entry accounting system and cost data. • Generally accepted accounting principles. • Pertains to subunits of the business and may be very detailed. • May extend beyond double -entry account - ing system to any type of 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 issued by mana - gerial accountants. 4. (a) The categories of ethical standards for management accountants are: (1) competence, (2) confidentiality, (3) integrity, and (4) objectivity. (b) No. The ethical standards state that management accountants shall not condone the commis - sion of unethical acts by others within their organizations. 5. Karen 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 and motivating involves coordinating the diverse activities and human resources of a company to produce a smooth -running operation. (3) Controlling is the process of keeping the activities of the enterprise on track. 6. Disagree. Decision making is not a separate management function. Rather, decision making in - volves the exercise of good judgment in performing the three management functions explained in the answer to question five above. 7. The differences between income statements are in the computation of the cost of goods sold as follows: Manufacturing company: Beginning finished goods inventory plus cost of goods manufactured minus ending finished goods inventory = cost of goods sold. 1-5 Questions Chapter 1 (Continued) Merchandising company: Beginning merchandise inventory plus cost of goods purchased minus end- ing merchandise inventory = cost of goods sold. 8. The difference in balance sheets pertains to the presentation of inventories in the current asset section. In a merchandising company, only merchandise inventory is shown. In a manufacturing company, three inventory accounts are shown: finished goods, work in process, and raw materials. 9. Manufacturing costs are classified as either direct materials, direct labor, or manufacturing over- head. 10. No, Gene is not correct. The distinction between direct and indirect materials is based on two cri- teria: (1) physical association and (2) the convenience of making the physical association. Materi - als which can not be easily associated with the finished product are considered indirect materials. 11. Product costs, or inventoriable costs, are costs that are a necessary and integral part of producing the finished product. Period costs are costs that are identified with a specific time period rather than with a salable product. These costs relate to nonmanufacturing costs and therefore are not inven - toriable costs. 12. A merchandising company has beginning merchandise inventory, purchases, and ending merchan - dise inventory. A manufacturing company has beginning finished goods inventory, cost of goods manufactured, and ending finished goods inventory. 13. (a) x = total cost of work in process. (b) x = cost of goods manufactured. 14. Raw materials inventory, 1/1 ................................................................................. $ 12,000 Raw materials purchases ...................................................................................... 180,000 Total raw materials available for use ........ ............................................................. 192,000 Raw materials inventory, 12/31 ............................................................................. 18,000 Direct materials used ................................................ ..................................... $174,000 15. Direct materials used ............................................................................................. $240,000 Direct labor used ................................................................................................... 200,000 Total manufacturing overhea d ............................................................................... 150,000 Total manufacturing costs.............................................................................. $590,000 16. (a) Total cost of work in process ($27,200 + $590,000)...................................... $617,200 (b) Cost of goods manufactured ($617,200 – $32,000) ...................................... $585,200 17. The order of listing is finished goods inventory, work in process i nventory, and raw materials in - ventory. *18. The accounting cycle for a manufacturing company is the same as for a merchandising company. *19. The account balances carried into the cost of goods manufactured columns are beginning and end- ing work in process and raw materials inventories, raw materials purchases, direct labor, indirect labor, factory repairs, factory utilities, factory depreciation, and factory insurance. 1-6 Questions Chapter 1 (Continued) *20. (a) The closing entry for the two inventories is: Dec. 31 Work in Process Inventory........................................................... XX Raw Materials Inventory .............................................................. XX Manufacturing Summary...................................................... XX (b) The closing entry for manufacturing summary is: Dec. 31 Income Summary .................................... .................................... XX Manufacturing Summary...................................................... XX 1-7 SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 1-1 Financial Accounting Managerial Accounting Primary users External users Internal users Types of reports Financial statements Internal reports Frequency of reports Quarterly and annually As frequently as needed Purpose of reports General -purpose Special -purpose informa - tion for a particular user for a specific decision Reporting standards Generally accepted accounting principles Verification Annual audit by certi - fied public accountant Relevance to decisions No independent audits BRIEF EXERCISE 1-2 The four specific ethical standards promulgated by the Institute of Manage - ment Accountants are: (1) competence, (2) confidentiality, (3) integrity, and (4) objectivity. BRIEF EXERCISE 1-3 (a) (1) Planning. (b) (2) Directing and motivating. (c) (3) Controlling. BRIEF EXERCISE 1-4 (a) DM Frames and tires used in manufacturing bicycles. (b) DL Wages paid to production workers. (c) MO Insurance on factory equipment and machinery. (d) MO Depreciation on factory equipment. 1-8 BRIEF EXERCISE 1-5 (a) Direct materials. (b) Direct materials. (c) Direct labor. (d) Manufacturing overhead. (e) Manufacturing overhead. (f) Direct materials. (g) Direct materials. (h) Manufacturing overhead. BRIEF EXERCISE 1-6 (a) Product. (b) Period. (c) Period. (d) Period. (e) Product. (f) Product. BRIEF EXERCISE 1-7 Product Costs Direct Material Direct Labor Factory Overhead (a) (b) (c) (d) X X X X BRIEF EXERCISE 1-8 (a) Direct materials used............................................................. $180,000 Direct labor ............................................................................. 242,000 Total manufacturing overhead.............................................. 208,000 Total manufacturing costs............................................. $630,000 1-9 BRIEF EXERCISE 1-8 (Continued) (b) Beginning work in process .................................................... $ 25,000 Total manufacturing costs ..................................................... 630,000 Total cost of work in process......................................... $655,000 BRIEF EXERCISE 1-9 IVY COMPANY Current assets Current Assets Section of Balance Sheet December 31, 2002 Cash ..................................................................... $ 62,000 Accounts receivable ........................................... 200,000 Inventories Finished goods............................................ $75,000 Work in process .......................................... 87,000 Raw materials .............................................. 68,000 230,000 Prepaid expenses ............................................... 38,000 Total current assets ............................ $530,000 BRIEF EXERCISE 1-10 Direct Materials Used (a) Direct Labor Used Factory Overhead Total Manufacturing Costs $146,000 (b) (c) $101,000 $134,000 BRIEF EXERCISE 1-11 Total Manufacturing Costs Work in Process (January 1) Work in Process (December 31) Cost of Goods Manufactured 1- 10 (a) (b) (c) $146,000 $123,000 $48,000 $180,000 1-11 *BRIEF EXERCISE 1-12 Account Work Sheet Column Finished Goods Inventory Work in Process Inventory Raw Materials Purchases Direct Labor Income statement (DR) Cost of goods manufactured (DR) Cost of goods manufactured (DR) Cost of goods manufactured (DR) 1- 12 SOLUTIONS TO EXERCISES EXERCISE 1-1 1. (b) Direct labor. 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) Manufacturing overhead. 10. (a) Direct materials. EXERCISE 1-2 (a) Factory utilities ....................................................................... $ 8,500 Depreciation on factory equipment....................................... 12,650 Indirect factory labor .............................................................. 48,900 Indirect materials .................................................................... 89,800 Factory manager's salary....................................................... 8,000 Property taxes on factory building........................................ 2,500 Factory repairs ........................................................................ 2,000 Manufacturing overhead ........................................................ $172,350 (b) Direct materials ....................................................................... $137,600 Direct labor .............................................................................. 69,100 Manufacturing overhead ........................................................ 172,350 Product costs ................................................................ .......... $379,050 (c) Depreciation on delivery trucks ............................................ $ 3,500 Sales salaries .......................................................................... 49,400 Repairs to office equipment................................................... 1,300 Advertising .............................................................................. 18,000 Office supplies used ............................................................... 2,640 Period costs ............................................................................ $ 74,840 1-13 EXERCISE 1-3 1. (c) 2. (c) 3. (a) 4. (c) 5. (b) 6. (d) 7. (a) 8. (b) 9. 10. (c) (c) EXERCISE 1-4 Raw materials inventory (1/1): Direct materials used............................................................ $190,000 Add: Raw materials inventory (12/31) ............................... 7,500 Less: Raw materials purchases.......................................... (158,000 ) Raw materials inventory....................................................... $ 39,500 Total cost of work in process: Cost of goods manufactured ............................................... $560,000 Add: Work in process (12/31) ............................................ 81,000 Total cost of work in process .............................................. $641,000 Total manufacturing costs: Total cost of work in process .............................................. $641,000 Less: Work in process (1/1) ................................................ (200,000 ) Total manufacturing costs ................................................... $441,000 Direct labor: Total manufacturing costs ................................................... $441,000 Less: Total overhead ........................................................... (122,000) Direct materials used ................................................ (190,000 ) Direct labor .......... .................................................................. $129,000 EXERCISE 1-5 A + $57,000 + $42,500 = $180,650 $68,400 + $86,000 + $81,600 = D A = $81,150 D = $236,000 $180,650 + B = $221,500 $236,000 + $16,500 = E B = $40,850 E = $252,500 $221,500 – C = $185,275 $252,500 – $9,000 = F C = $36,225 F = $243,500 EXERCISE 1-5 (Continued) 1-13 $130,000 + G + $102,000 = $253,700 $327,000 – $70,000 = I G = $21,700 I = $257,000 $253,700 + H = $327,000 H = $73,300 Additional explanation to EXERCISE 1-5 solution: Case A (a) Total manufacturing costs ................................................... $180,650 Less: Manufacturing overhead ........................................... (42,500) Direct labor................................................................. (57,000 ) Direct materials used............................................................ $ 81,150 (b) Total cost of work in process .............................................. $221,500 Less: Total manufacturing costs........................................ 180,650 Work in process (1/1/02)....................................................... $ 40,850 (c) Total cost of work in process .............................................. $221,500 Less: Cost of goods manufactured.................................... 185,275 Work in process (12/31/02)................................................... $ 36,225 Case B (d) Direct materials used............................................................ $ 68,400 Direct labor ............................................................................ 86,000 Manufacturing overhead ........................................... ........... 81,600 Total manufacturing costs ................................................... $236,000 (e) Total manufacturing costs ................................................... $236,000 Work in process (1/1/02)....................................................... 16,500 Total cost of work in process .............................................. $252,500 (f) Total cost of work in process .............................................. $252,500 Less: Work in process (12/31/02) ....................................... 9,000 Cost of goods manufactured ............................................... $243,500