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Chapter 14
Managerial Accounting Concepts and
Principles
QUESTIONS
1. The managerial accountant plays an important role in preparing the information
necessary for effective planning and control decisions. One example is the budget,
continuously improve a business.
2.
Financial Accounting Managerial Accounting
(a) Users and decision
makers
Investors, creditors, and
other users external to the
organization
Managers, employees, and
decision makers internal to
the organization
(c) Flexibility of practice Structured and often
controlled by GAAP
Relatively flexible (no
GAAP)
(e) Focus of information Emphasis on whole
organization
Emphasis on projects,
processes, and subdivision
of an organization
3. A customer orientation has led companies to adopt the principles of the lean
business model in response to consumer demands. The essence of customer
orientation is that all managers and employees should be sensitive to the wants and
4. Direct labor refers to the efforts of employees who physically convert materials to
finished product. Indirect labor refers to the efforts of factory employees who do not
5. Factory overhead is limited to indirect costs that are incurred in the production
process. That is, it consists of activities that support the production process, such
as indirect material, indirect labor, heat, and related factory utilities. Selling and
are expensed as period costs.
6. Direct materials are raw materials that physically become part of the product and
can be clearly traced to specific units or batches of product. Indirect materials are
7. Direct labor can be either a prime cost or a conversion cost.
8. Direct costs include: costs of materials such as circuit boards, wires, television
tubes, smartphone cameras, memory chips, and processors, as well as the labor of
workers who assemble the products.
are possible as these lists are not comprehensive.
9. The production manager should likely not be evaluated on the basis of operating
10. Management usually must be able to predict financial performance to be successful.
11. Product costs are capitalized because they represent a future value (an asset) to the
Financial and Managerial Accounting, 6th Edition
12. A manufacturing business produces a product, whereas in a merchandising or
service business this is not the case. In making a product, the manufacturing
not control and measure any inventory.
13. To run a successful business, management must make predictions and estimates
14. A manufacturing firm converts raw materials into finished products. A
manufacturing company would report three types of inventories on its balance
sheet: raw materials, work in process, and finished goods. The finished goods are
15. Manufacturers’ balance sheets usually include small tools, factory buildings, factory
merchandising company would usually not own these assets.
16. Manufacturing firms have inventories at various states of completion. Manufacturing
a product requires raw materials, which are converted to finished goods.
Manufacturing companies maintain raw materials inventory so that they have
orders. (Note: A JIT system attempts to minimize all three types of inventory.)
17. Manufacturing activities of a company are described in the Schedule of Cost of
18. The three categories of manufacturing costs are: direct materials, direct labor, and
factory overhead.
19. Examples of factory overhead costs include: indirect materials, indirect labor,
depreciation of the factory equipment and plant, amortization of patents, the cost of
20. Components of Schedule of COGM Apple Examples
Direct material....................................................................Processors, chips, covers
21. Google
Schedule of Cost of Goods Manufactured
For Year Ended December 31, 2015
The date matches the period of the income statement. The “schedule of cost of
goods manufactured” supports the income statement in computing cost of goods
available for sale for the cost of goods sold section.
22. The income statement describes the revenues and expenses for the year. Included in
the calculation of the cost of goods sold is a line item identified as the cost of goods
manufactured. This amount is calculated and reported as the bottom line of the
23. Raw materials inventory turnover and days’ sales in raw materials inventory can be
used to assess raw materials inventory management. Raw materials inventory
turnover is computed as raw materials used divided by average raw materials
24. Yes. Apple can use the concepts and measures of cycle time and cycle
efficiency to evaluate performance on its product offerings.
25. Inventory Components ($ millions) Dell (February 1, 2013)
Production materials......................................................... $ 593
Work in process................................................................. 283
Financial and Managerial Accounting, 6th Edition
QUICK STUDIES
Quick Study 14-1 (5 minutes)
1. Its primary users are company managers. Managerial
Quick Study 14-2 (5 minutes)
1. At her normal usage, your sister’s total cost with Plan A is $80 (fixed).
2. If her usage doubles, your sister’s total cost remains fixed at $80 under
Quick Study 14-3 (5 minutes)
1. Indirect cost
5. Direct cost
Quick Study 14-4 (10 minutes)
1. Direct materials
2. Factory overhead
Quick Study 14-5 (10 minutes)
1. Product cost
5. Product cost
6. Period cost
Quick Study 14-6 (5 minutes)
Ending work in process inventory is computed as:
Raw materials used in production...................................................... $74,300
Add work in process inventory, beginning of year........................... 26,500
Total cost of work in process..............................................................
251,500
Financial and Managerial Accounting, 6th Edition
Quick Study 14-7 (10 minutes)
Finished goods inventory, December 31, 2014.......................... $ 345,000
Plus cost of goods manufactured............................................... 918,700
Quick Study 14-8 (10 minutes)
Cost of goods sold is computed as:
Beginning finished goods inventory.................................................. $ 500
Ending finished goods inventory........................................................ 750
Cost of goods sold............................................................................... $3,750
Quick Study 14-9 (5 minutes)
Total manufacturing cost is computed as:
Raw materials used in production...................................................... $53,750
Direct labor used in production.......................................................... 12,000
Quick Study 14-10 (15 minutes)
Barton Company
Schedule of Cost of Goods Manufactured
For Year Ended December 31, 2015
Direct materials...................................................................................... $190,500
Direct labor ............................................................................................ 63,150
Less work in process, December 31, 2015.......................................... 142,750
Cost of goods manufactured................................................................ $292,500
Quick Study 14-11 (5 minutes)
Raw materials inventory, beginning.......................................... $ 6,000
Plus raw materials purchased.................................................... 123,500
Raw materials available for use................................................. 129,500
Financial and Managerial Accounting, 6th Edition
Quick Study 14-12 (10 minutes)
Quick Study 14-13 (5 minutes)
(Amounts in millions of Swiss francs)
Raw materials inventory, beginning.......................................... 3,815
Plus raw materials purchased.................................................... 13,860
Quick Study 14-14 (10 minutes)
(in millions of Swiss francs)
Cost of raw materials used........................................................ 14,176
Beginning raw materials inventory........................................... 3,815
Ending raw materials inventory................................................ 3,499
*Rounded
Financial and Managerial Accounting, 6th Edition
