10-1
Problem 10-24
Event
Assets
=
Equity
Rev.
–
=
N. Inc.
Cash Flow
No.
Cash
+
Raw M.
+
WIP
+
+
Office
Furn.
+
Manuf.
Equip.
=
+
Ret. Ear.
BB
660,000
+
51,000
+
18,000
+
+
NA
+
NA
=
+
189,000
NA
–
=
NA
1.
(23,000)
+
NA
+
NA
+
+
NA
+
NA
=
+
(23,000)
NA
–
=
(23,000)
(23,000) OA
2.
(47,000)
+
47,000
+
NA
+
+
NA
+
NA
=
+
NA
NA
–
=
NA
(47,000) OA
3.
NA
+
(83,000)
+
83,000
+
+
NA
+
NA
=
+
NA
NA
–
=
NA
NA
4.
(60,000)
+
NA
+
NA
+
+
NA
+
NA
=
+
(60,000)
NA
–
=
(60,000)
(60,000) OA
5.
(91,000)
+
NA
+
91,000
+
+
NA
+
NA
=
+
NA
NA
–
=
NA
(91,000) OA
6.
(90,000)
+
NA
+
NA
+
+
90,000
+
NA
=
+
NA
NA
–
=
NA
(90,000) IA
7.
NA
+
NA
+
NA
+
+
(16,000)
+
NA
=
+
(16,000)
NA
–
=
(16,000)
NA
8.
(165,000)
+
NA
+
NA
+
+
NA
+
165,000
=
+
NA
NA
–
=
NA
(165,000) IA
9.
NA
+
NA
+
20,000
+
+
NA
+
(20,000)
=
+
NA
NA
–
=
NA
NA
10.
(45,000)
+
NA
+
45,000
+
+
NA
+
NA
=
+
NA
NA
–
=
NA
(45,000) OA
11.
(70,000)
+
NA
+
NA
+
+
NA
+
NA
=
+
(70,000)
NA
–
=
(70,000)
(70,000) OA
12.
NA
+
NA
+
(240,000)
+
+
NA
+
NA
=
+
NA
NA
–
=
NA
NA
13.
420,000
+
NA
+
NA
+
+
NA
+
NA
=
+
420,000
420,000
–
=
420,000
420,000 OA
14.
NA
+
NA
NA
+
+
NA
+
NA
=
+
(220,000
)
NA
–
=
(220,000)
NA
Total
489,000
+
15,000
+
17,000
+
+
74,000
+
145,000
=
+
220,000
420,000
–
=
31,000
(171,000)
10-2
Problem 10-24 (continued)
b.
The impact on cash flow occurs when Antioch pays for various product costs. In this case, cash
c.
Antioch Company
Financial Statements for 2014
Cost of Goods Manf. and Sold
Income Statement
Balance Sheet
Beg. raw mat. inv.
$51,000
Sales revenue
$420,000
Assets
Purchases
47,000
Cost of goods sold
(220,000)
Cash
$489,000
Raw mat. avail.
98,000
Gross margin
200,000
Raw mat. inv.
15,000
End. raw mat. inv.
(15,000)
Sell. & admin. exp.
(169,000)
WIP inv.
17,000
Raw rat. used
83,000
Net income
$ 31,000
Fin. goods inv.
63,000
Labor
91,000
Manuf. Equip.
145,000
Overhead
65,000
Office Equip.
74,000
Total manf. costs
239,000
Total assets
$803,000
Beg. WIP inv.
18,000
Total WIP inv.
257,000
End. WIP inv.
(17,000)
Cost of goods man.
240,000
Equity
Beg. fin. goods
43,000
Common stock
$583,000
Goods available
283,000
Retained earnings
220,000
End. fin. goods
(63,000)
Total equity
$803,000
Cost of goods sold
$220,000
10-3
Problem 11-24 (continued)
d.
Inventory product costs for manufacturing companies focus on the costs necessary to make
the product. The cost of research and development (Event 1) occurs before the inventory is
made and is therefore an upstream cost, not an inventory (product) cost. The inventories
holding costs (Event 11) are incurred after the inventory has been made and are, therefore,
as product costs.
e.
Since the merchandise would be available on demand, Antioch could operate a just–in-time
inventory system thereby eliminating the inventory holding expense. Since the additional
10-4
Problem 10-25
a. Annual inventory holding cost:
($2,000,000 x 10%) + ($9,000 x 12) = $308,000
b. A JIT system should enable Torre to receive raw materials just in time for
production. Therefore, it virtually eliminates the need to hold inventory. The
inventory holding cost can be eliminated as well.
Problem 10-26
a. 95 students enroll in the course:
Revenue ($1,500 x 95)
$142,500
Expenses
Cost of textbooks ($80 x 110)
$ 8,800
Cost of teachers
36,000
Other operating expenses
40,000
Total expenses
84,800
Net income
$ 57,700
Cost of unused books: [(110 – 95) x $80] = $1,200.
b. 115 students attempt to register, but only 110 students can be accepted:
Revenue ($1,500 x 110)
$165,000
Expenses
Cost of textbooks ($80 x 110)
$ 8,800
Cost of teachers
36,000
Other operating expenses
40,000
Total expenses
84,800
Net income
$ 80,200
Problem 10-26 (continued)
If all 115 students could be accepted, the income statement would be as follows:
Revenue ($1,500 x 115)
$172,500
Expenses
Cost of textbooks ($80 x 115)
$ 9,200
Cost of teachers
36,000
Other operating expenses
40,000
Total expenses
85,200
10-5
Net income
$ 87,300
The lost profit resulting from rejecting 5 additional students is $7,100 ($87,300 –
$80,200).
c. 95 students enrolled under a JIT system:
Revenue ($1,500 x 95)
$142,500
Expenses
Cost of textbooks ($90 x 95)
$ 8,550
Cost of teachers
36,000
Other operating expenses
40,000
Total expenses
84,550
Net income
$ 57,950
The savings from eliminating the cost of excessive books exceeds the increased
Problem 10-26 (continued)
d. 115 students enrolled under the JIT system
Revenue ($1,500 x 115)
$172,500
Expenses
Cost of textbooks ($90 x 115)
$10,350
Cost of teacher
36,000
Other operating expenses
40,000
Total expenses
86,350
Net income
$ 86,150
The additional revenue from 5 students who would have been turned away
under the condition of requirement b exceeds the additional cost of books
required under the JIT system. Therefore, the JIT system results in a greater
net income than the traditional system.
e. Students who are denied enrollment may develop a negative image of CMA
Review, Inc. The negative image could become widespread when the disgruntled
10-6
students complain to their friends. The JIT system not only improves net
income, but improves customer satisfaction by allowing everyone entry into the
course.
Problem 10-27
Purchases materials
from a wholesaler
supplier.
Vernon processes the materials
to make ice cream.
a. Value Chain
Research and
development
Distributes to
ice cream
shops.
Ice cream shops sell the
product to the public.
Vernon advertises the ice cream.
10-7
Problem 10-27 (continued)
b. Vernon’s competitors engage in activities similar to Jensen’s for materials
acquisition, product manufacturing, product distribution, and advertising. The
value-added activity that Vernon has created is its research and development
effort, which resulted in a new product for consumers.
ATC 10-1
a. The information described in the table is primarily managerial accounting
for managerial accounting purposes.
c. Starbucks’ 2012 fiscal year appears a better than 2011 because in 2012 it had
higher revenues and net earnings.
ATC 10-2
a.
1. Cost of goods sold
Raw materials
$ 720,000
Utilities1
96,000
Labor
880,000
Depreciation on manufacturing equipment2
1,000,000
Setup cost
80,000
Total product cost
$2,776,000
10-8
Cost of goods sold = $40 per unit x 60,000 units = $2,400,000
2. Upstream Costs
Note: The $10,000 of accrued engineer’s salaries is an upstream cost. However, it
would not be used in the computation of net income because it applies to the previous
accounting period.
Utilities1
$ 16,000
Salaries
390,000
Redesign cost
186,000
Insurance expense3
16,000
Total
$608,000
3. Downstream Costs
Advertising
$ 70,000
Utilities1
48,000
Salaries ($658,000 + $16,000)
674,000
Insurance expense3
32,000
Total
$824,000
ATC 10-2 (continued)
1Allocation Rate for Utilities = $160,000 100,000 = $1.60 per square foot.
Research and development
10,000
x
$1.60
=
$ 16,000
Manufacturing
60,000
x
$1.60
=
96,000
Selling and administrative
30,000
x
$1.60
=
48,000
Total
100,000
x
$1.60
=
$160,000
Rate for insurance expense = $48,000 12 = $4,000 per employee.
Research and development
4
x
$4,000
=
$16,000
Selling and administrative
8
x
$4,000
=
32,000
Total
12
x
$4,000
=
$48,000
10-9
b. Income Statement
Revenue (60,000 x $70)
$4,200,000
Cost of goods sold
(2,400,000)
Gross margin
1,800,000
Upstream expense
(608,000)
Downstream expenses
(824,000)
Net income
$ 368,000
ATC 10-3
a. The company’s annual report provides little detail regarding the individual costs
incurred to manufacture its products. This annual report, like those of all public
companies, is designed primarily to meet the needs of external or internal users.
d. The company reports the balances in three separate inventory accounts:
Finished goods, Work in process, and Raw materials.
ATC 10-4
Each letter prepared by the students will be unique. Accordingly, there is no single
solution. However, student letters should include some discussion of at least a few of the
following ideas: (1) global competition, (2) benchmarking, (3) value-added assessment,
(4) reengineering, and (5) just-in-time inventory systems.
b. As discussed in part a, misclassifying the start-up costs would present a more
favorable representation of the company’s financial condition (i.e., assets and net
income are overstated) than actually exists. Accordingly, investors or creditors
10-10
may be lured into making an investment in or loan to the company that they
otherwise would have avoided.
c. The overstatement of income would result in the overpayment of taxes. This
would be detrimental to the owners of the business.
d. Ms. Emerson violated many of the ethical principles some of which included the
failure to (1) perform professional duties in accordance with relevant laws,
regulations, and technical standards, (2) prepare complete and clear reports and