• Ford Motor Co. has said it plans to close 14 manufacturing plants in North America and cut
between 25,000 to 30,000 jobs by 2012.
• Ford is the leading U.S.-based producer of hybrid-electric vehicles, with record sales that were up
72 percent in 2009.
• With about 198,000 employees and about 90 plants worldwide, the company’s automotive brands
include Ford, Lincoln, Mercury, and Volvo.
• In the U.S. in 2009, Ford F-Series was the best-selling truck for the 33rd year in a row.
• Not all of a manufacturing firm’s inventory is in a “ready to sell” condition. The three inventory
accounts facilitate collecting unit cost data so the proper finished goods cost can be matched to
revenue in the period the goods are sold.
These questions are designed to check students’ understanding of new terms, concepts, and
procedures presented in the chapter.
1. Merchandising businesses use accounts for obtaining, processing, and inventorying materials at all
stages of production.
3. Cost of goods manufactured appears on income statement in the Cost of Goods Sold section.
4. Beg. bal. of raw materials added to purchases and freight in, subtract purchases discounts and
6. Yes, the companies with similar processes may classify items differently. If the cost of the raw
material could be considered immaterial, it could be classified as an indirect material.
8. Manufacturing costs not classified as direct labor or direct material.
10. Cost of direct materials and labor, plus an allocation of manufacturing overhead costs.
Discussion Questions
CHAPTER 26
ACCOUNTING FOR MANUFACTURING ACTIVITIES
Chapter Opener: Thinking Critically
Answers will vary. Students may list the following as costs: purchasing fewer raw materials such as
sheet metal, plastic, glass, fabric, tires, and batteries; cutting back labor costs for assembly; costs
associated with the manufacturing facilities such as rent, utilities, and depreciation of equipment.
Fast Facts
Managerial Implications: Thinking Critically
14. The cost of goods manufactured statement must be produced before the income statement because
15. A merchandising firm has one inventory account, Merchandise Inventory. Purchases are debited to
the Purchases account, not directly to the inventory account.
17. Beginning finished goods inventory is added to cost of goods manufactured; ending finished goods
inventory is then subtracted.
Discussion Questions (continued)
EXERCISE 26.1
Raw Materials
Raw Materials Inventory, January 1 38 0 0 0 00
Materials Purchases 695 0 0 0 00
Freight-In 20 0 0 0 00
EXERCISE 26.2
PAGE
POST.
REF.
1 1
2 2013 2
3 Dec. 31 Manufacturing Summary 38 0 0 0 00 3
4 Raw Materials Inventory 38 0 0 0 00 4
13 Manufacturing Summary 75 0 0 0 00 13
14 14
15 31 Income Summary 62 0 0 0 00 15
16 Finished Goods Inventory 62 0 0 0 00 16
17 17
Socal Company
Partial Statement of Cost of Goods Manufactured
Year Ended December 31, 2013
GENERAL JOURNAL
Adjusting Entries
DATE DESCRIPTION DEBIT CREDIT
EXERCISE 26.3
Raw Materials Inventory (Beginning) $95,000
EXERCISE 26.4
Total Manufacturing Cost $2,200,000
EXERCISE 26.5
Insurance on office building.
EXERCISE 26.6
EXERCISE 26.8
EXERCISE 26.9
1. Insurance on finished goods; 2. Payroll taxes on outside sales salaries; 5. Salary of accounts
receivable clerk; and 9. Freight out.
3. Indirect materials and supplies; 4. Repairs to factory building; 5. Depreciation of factory equipment
The following items would not be extended to the Cost of Goods Manufactured section of the
worksheet:
EXERCISE 26.10
PAGE
POST.
REF.
1 1
2 2013 (Adjustment a) 2
9 (Adjustment b) 9
10 31Insurance Expense—Factory 1200000 10
11 Prepaid Insurance 120000011
12 12
13 (Adjustment c) 13
14 31 Direct Labor 600000 14
15 Salaries and Wages Payable 600000 15
16 16
20 20
PAGE
POST.
REF.
1 2013 1
4 Direct Labor 96 0 0 0 00 4
5 Factory Supplies Expense 700000 5
6 6
7 31 Income Summary 11700000 7
8 Manufacturing Summary 11700000 8
DATE DESCRIPTION DEBIT CREDIT
Adjusting Entries
GENERAL JOURNAL
Closing Entries
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 26.1A
Work in Process, January 1 39 0 0 0 00
Raw Materials
Raw Materials, January 1 22 0 0 0 00
Materials Purchases 192 5 0 0 00
Total Work in Process for Year 549 0 0 0 00
Less Work in Process Inventory, December 31 36 0 0 0 00
Cost of Goods Manufactured 513 0 0 0 00
Dooley Manufacturing Company
Statement of Cost of Goods Manufactured
Year Ended December 31, 2013
PROBLEM 26.1A (continued)
Revenue
Sales 1,00000000
Less Sales Returns and Allowances 550000
Operating Expenses
Selling Expenses
Sales Salaries Expense 12000000
Payroll Taxes Expense—Sales Salaries 1200000
Delivery Expense 800000
Total Operating Expenses 39150000
Net Income Before Income Taxes 8500000
Income Tax Expense 2125000
Net Income After Income Taxes 6375000
Dooley Manufacturing Company
Income Statement
Year Ended December 31, 2013
PROBLEM 26.2A
Bay Corp.
Worksheet
Year Ended December 31, 2013
1 Cash 5000000
2 Accounts Receivable 7500000
3 Allowance for Doubtful Accounts 200000 (b) 25000
9 Land 5000000
10 Factory Building 20000000
11 Accum. Depreciation—Fac. Bldg. 2000000 (e) 10 00000
12 Factory Machines 10000000
13 Accum. Depreciation—Fac. Machines 2000000 (e) 10 00000
14 Office Furniture & Equipment 2000000
25 Materials Purchases 25200000
26 Purchases Returns and Allowances 200000
27 Freight In 1000000
28 Direct Labor 18100000 (f) 1 8 0 0 00
29 Indirect Labor 2000000 (f) 2 0 0 00
DEBIT CREDIT DEBIT CREDITACCOUNT NAME
TRIAL BALANCE ADJUSTMENTS
PROBLEM 26.2A (continued)
5000000 5000000 1
7500000 7500000 2
3000000 3000000 13
2000000 2000000 14
600000 600000 15
7600000 7600000 16
200000 200000 17
214900 214900 18
18280000 18280000 28
2020000 2020000 29
2075300 2075300 30
800000 800000 31
#### 7 5 3 00 1,49455200 49375300 200000 550000 99550000 593 5 0000 49705200 32
DEBIT CREDIT
BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT DEBIT
ADJUSTED TRIAL BALANCE COST OF GOODS MANUFACTURED INCOME STATEMENT
CREDIT
PROBLEM 26.2A (continued)
Bay Corp.
Worksheet (Continued)
Year Ended December 31, 2013
1 Totals Brought Forward 1,10910000 1,46800000 9615300 13905200
2 Repairs and Maintenance—Factory 240000
7 Property Taxes—Factory 600000
8 Sales Salaries Expense 8500000
9 Payroll Taxes Expense—Sales 850000
10 Delivery Expense 500000
11 Advertising Expense 500000
12 Uncollectible Accounts Expense (b) 2 5 0 00
13 Miscellaneous Selling Expense 650000
14 Officers’ Salaries Expense 14500000
DEBIT CREDIT DEBIT CREDITACCOUNT NAME
TRIAL BALANCE ADJUSTMENTS
PROBLEM 26.2A (continued)
1,092 7 5 3 00 1,494 5 5 2 00 493 7 5 3 00 200000 550000 99550000 593 5 0 000 49705200 1
240000 240000 2
650000 650000 13
145 0 0 0 00 145 0 0 0 00 14
40 0 0 0 00 40 0 0 0 00 15
18 5 0 0 00 18 5 0 0 00 16
200000 200000 17
ADJUSTED TRIAL BALANCE COST OF GOODS MANUFACTURED INCOME STATEMENT
CREDIT DEBIT CREDIT
BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT DEBIT
PROBLEM 26.2A (continued)
Work in Process, January 1 40 0 0 0 00
Raw Materials
Raw Materials, January 1 25 0 0 0 00
Direct Labor 182 8 0 0 00
Manufacturing Overhead
Indirect Labor 20 2 0 0 00
Payroll Taxes—Factory 20 7 5 3 00
Utilities—Factory 800000
Repairs and Maintenance—Factory 240000
Bay Corp.
Statement of Cost of Goods Manufactured
Year Ended December 31, 2013
PROBLEM 26.2A (continued)
Revenue
Sales 995 5 0 0 00
Less Sales Returns and Allowances 550000
Operating Expenses
Selling Expenses
Sales Salaries Expense 85 0 0 0 00
Payroll Taxes Expense—Sales Salaries 850000
Delivery Expense 500000
Year Ended December 31, 2013
Bay Corp.
Income Statement
PROBLEM 26.2A (continued)
Balance, January 1, 2013 348 5 0 0 00
Year Ended December 31, 2013
Bay Corporation
Statement of Retained Earnings
PROBLEM 26.2A (continued)
Total Current Assets 22125000
Property, Plant, and Equipment
Land 5000000
Factory Building 20000000
Less: Accumulated Depreciation—Factory Building 3000000 17000000
Income Tax Payable 214900
Social Security Tax Payable 1 2 4 00
Medicare Tax Payable 2 9 00
Total Liabilities 8030200
Stockholders’ Equity
December 31, 2013
Assets
Bay Corp.
Balance Sheet
PROBLEM 26.2A (continued)
POST.
REF.
1 1
12 31 Work in Process Inventory 38 0 0 0 00 12
13 Manufacturing Summary 38 0 0 0 00 13
14 14
15 31 Income Summary 42 0 0 0 00 15
16 Finished Goods Inventory 42 0 0 0 00 16
27 Prepaid Insurance 500000 27
28 28
29 (Adjustment d) 29
30 31 Indirect Materials and Supplies 5 0 0 00 30
31 Factory Supplies 5 0 0 00 31
Adjusting Entries
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PAGE
PROBLEM 26.2A (continued)
POST.
REF.
1 2013 (Adjustment e) 1
2 Dec. 31 Depreciation—Factory Building 10 0 0 0 00 2
3 Depreciation—Factory Machines 10 0 0 0 00 3
4 Depreciation—Office Furniture and Equipment 200000 4
5 Accumulated Depreciation—Factory Building 10000 00 5
6 Accumulated Depreciation—Factory Machines 10000 00 6
18 18
19 (Adjustment h) 19
20 31Income Tax Expense 214900 20
21 Income Tax Payable 214900 21
22 22
GENERAL JOURNAL PAGE
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 26.2A (continued)
POST.
REF.
1 1
2 2013 2
3 Dec. 31 Purchases Returns and Allowances 2 0 0 0 00 3
4 Manufacturing Summary 2 0 0 0 00 4
5 5
6 31 Manufacturing Summary 52965300 6
14 Indirect Materials and Supplies 2500 00 14
15 Depreciation—Factory Building 10 0 0 0 00 15
16 Depreciation—Factory Machines 1000000 16
27 Delivery Expense 500000 27
28 Advertising Expense 500000 28
29 Uncollectible Accounts Expense 2 5 0 00 29
30 Miscellaneous Selling Expense 650000 30
31 Officers’ Salaries Expense 14500000 31
PAGE
Closing Entries
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 26.2A (continued)
POST.
REF.
1 2013 1
2 Dec. 31 Income Summary 96 4 4 8 00 2
3 Retained Earnings 96 4 4 8 00 3
15 Income Tax Expense 214900 15
16 16
Analyze: $182,800 ÷ $533,653 = 34.3 percent. Bay Corporation spends much more than the
industry standard on direct labor.
PAGEGENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT