EXERCISES
Exercise 14-1 (10 minutes)
Exercise 14-2 (20 minutes)
Most fixed costs are indirect. Fixed costs normally are resources acquired to
support the production process rather than being traceable to individual
For example, as production increases, the total cost of the laces consumed in
production increases. These laces might be classified as direct materials.
In addition, the direct costs—direct materials and direct labor—are variable.
Exercise 14-3 (10 minutes)
1. Fixed, indirect
5. Fixed, indirect
6. Variable, direct
Exercise 14-4 (20 minutes)
Cost Variable Fixed Direct Indirect
1. Advertising.….………………………………… X X
2. Beverages and snacks….…..…..…...….. X X
6. Flight attendant salaries…………….……. X X
7. Pilot salaries…………..………..…..…….….. X X
Financial and Managerial Accounting, 6th Edition
Exercise 14-5 (15 minutes)
1. Direct material
2. Factory overhead
8. Factory overhead
Exercise 14-6 (20 minutes)
Exercise 14-7 (20 minutes)
Part 1
Company 1, Sunrise Foods, is a merchandising firm with only one
Exercise 14-7 (concluded)
Part 2
Company 1
Sunrise Foods
Balance Sheet–Current Asset Section
December 31, 2015
Cash……………………………………..………………..………………………..……………...$ 7,000
Accounts receivable……………….…………………..………….…..………..…..…….. 62,000
Company 2
Rayzer Skis Mfg.
Balance Sheet–Current Asset Section
December 31, 2015
Cash……………………………………..………………..………………………..……………...$ 5,000
Accounts receivable……………….…………………..………….…..………..…..…….. 75,000
Raw materials inventory………………………………………………………..……….... 42,000
Work in process inventory……………………..………………………………..…..….. 30,000
Discussion: The current asset section of the balance sheet for these two
companies differs because one is a merchandiser and one is a
Financial and Managerial Accounting, 6th Edition
Exercise 14-8 (30 minutes)
Garcon
Company
Pepper
Company
1. COST OF GOODS MANUFACTURED
Direct materials
Beginning raw materials inventory..…..…....... $ 7,250 $ 9,000
Raw materials purchases…………..…..………….. 33,000 52,000
Raw materials available for use………….………. 40,250 61,000
Factory overhead
Rental cost on factory equipment…..…...…….. 27,000 22,750
Factory utilities………….………………….…………… 9,000 12,000
Factory supplies used……….………..…..…….….. 8,200 3,200
Indirect labor…………….……………………………….. 1,250 7,660
2. COST OF GOODS SOLD
Beginning finished goods inventory………..……. $ 12,000 $ 16,450
Cost of goods manufactured….………..…..………. 96,680 139,860
E EExercise 14-9 (30 minutes)
GARCON COMPANY
Income Statement
For Year Ended December 31, 2015
Sales…………………..………………..………………………..……..……….... $ 195,030
Cost of goods sold (from Ex. 14-8)…………..………………………… 91,030
Gross profit…………………………………..……………………………..…... 104,000
Operating expenses
PEPPER COMPANY
Income Statement
For Year Ended December 31, 2015
Sales…………………..………………..………………………..……..……….... $ 290,010
Cost of goods sold (from Ex. 14-8)…………..………………………… 143,010
Gross profit…………………………………..……………………………..…... 147,000
Operating expenses
Financial and Managerial Accounting, 6th Edition
Exercise 14-9 (continued)
GARCON COMPANY
Partial Balance Sheet
As of December 31, 2015
Cash……………………………………..…………………..…..………..….... $20,000
Accounts receivable, net……………..…………………………………. 13,200
Inventories
PEPPER COMPANY
Partial Balance Sheet
As of December 31, 2015
Cash……………………………………..…………………..…..………..….... $15,700
Accounts receivable, net……………..…………………………………. 19,450
Inventories
Exercise 14-10 (20 minutes)
Garcon
Company
Pepper
Company
1. PRIME COSTS
Direct materials
Beginning raw materials inventory..…..…....... $ 7,250 $ 9,000
Raw materials purchases…………..…..………….. 33,000 52,000
Raw materials available for use………….………. 40,250 61,000
2. CONVERSION COSTS
Direct labor………………..…….………..……………..….
Factory overhead
$19,000
$35,000
Rental cost on factory equipment…..…...…….. 27,000 22,750
Factory utilities………….………………….…………… 9,000 12,000
Financial and Managerial Accounting, 6th Edition
Exercise 14-11 (20 minutes)
Merchandising Business
UNIMART
Partial Income Statement
For Year Ended December 31, 2015
Cost of goods sold
Merchandise inventory, December 31, 2014…………………..…… $ 275,000
Merchandise purchases……………….…………….…..………..…..….. 500,000
Exercise 14-11 (concluded)
Manufacturing Business
PRECISION MANUFACTURING
Partial Income Statement
For Year Ended December 31, 2015
Cost of goods sold
Finished goods inventory, December 31, 2014………………… $ 450,000
Cost of goods manufactured…………….…………………..……….. 900,000
Financial and Managerial Accounting, 6th Edition