Fundamental Accounting Principles, 21st Edition
1040
Exercise 18-11 (25 minutes)
Account
Balance
Sheet
Income
Statement
Manufacturing
Statement
Overhead
Report
Accounts receivable ……………………....
✓
Computer supplies used in office …....
✓
Beginning finished goods inventory
✓
Beginning goods in process
inventory ……………………………………..
✓
Beginning raw materials inventory …..
✓
Cash ……………………………………………...
✓
Depreciation expense—Factory
building………………………………………..
✓
Depreciation expense—Factory
equipment …………………………………...
✓
Depreciation expense—Office
building………………………………………..
✓
Depreciation expense—Office
equipment …………………………………...
✓
Direct labor …………………………………....
✓
Ending finished goods inventory ……..
✓
✓
Ending goods in process inventory....
✓
✓
Ending raw materials inventory ……....
✓
✓
Factory maintenance wages …………....
✓
Computer supplies used in factory ....
✓
Income taxes …………………………………..
✓
Insurance on factory building ………....
✓
Rent cost on office building …………....
✓
Office supplies used ……………………....
✓
Property taxes on factory building …..
✓
Raw materials purchases ………………..
✓
Sales ……………………………………………...
✓
Exercise 18-12 (25 minutes)
SHANTA COMPANY
Manufacturing Statement
For Year Ended December 31, 2013
Direct materials
Raw materials inventory, December 31, 2012 ………………..
Raw materials purchases ……………………………………..……..
Raw materials available for use …………………………………..
Less raw materials inventory, December 31, 2013 ….……..
Direct materials used …………………………………………..……..
$169,900
Direct labor ……………………………………………………………..……..
225,000
Factory overhead
Factory computer supplies used …………………………..
Indirect labor ………………………………………………………..……..
Repairs—Factory equipment ………………………………………..
Rent cost of factory building ………………………………………..
Total factory overhead costs ………………………………..……..
127,090
Total manufacturing costs ……………………………………………..
521,990
Goods in process inventory, December 31, 2012 ……………..
53,900
Total cost of goods in process ………………………………..……..
575,890
Less goods in process inventory, December 31, 2013 ………..
41,500
Cost of goods manufactured …………………………………………..
$534,390
Exercise 18-13 (20 minutes)
SHANTA COMPANY
Income Statement
For Year Ended December 31, 2013
Sales ……………………………………………………………………….……..
$1,250,000
Cost of goods sold
Finished goods inventory, December 31, 2012……….……..
$ 62,750
Cost of goods manufactured ………………………………………..
534,390
Cost of goods available for sale …………………………….……..
597,140
Less finished goods inventory, December 31, 2013 …..……..
67,300
Cost of goods sold ……………………………………………….……..
529,840
Gross profit ……………………………………………………….…………..
720,160
Operating expenses
Advertising expense ……………………………………………..……..
94,000
General and administrative expenses …………………………..
129,300
Total operating expenses ……………………………………..……..
223,300
Operating income ……………………………………………………….
$ 496,860
Exercise 18-14 (10 minutes)
Exercise 18-15 (10 minutes)
b. If customers rate any of the factors on the survey as anything other than
“very satisfied,” managers should investigate the reasons for the
Exercise 18-16 (20 minutes)
Cost by Behavior
Cost by Traceability
Cost
Variable
Fixed
Direct
Indirect
1. Advertising ………………………………….….
X
X
2. Beverages and snacks …………………….
X
X
3. Regional VP salary ………………………….
X
X
4. Depreciation on ground equip. …….….
X
X
5. Fuel and oil used in planes …………..….
X
X
6. Flight attendant salaries ………………….
X
X
7. Pilot salaries ………………………………..….
X
X
8. Ground crew wages ……………………..….
X
X
9. Travel agent salaries ……………………….
X
X
Fundamental Accounting Principles, 21st Edition
1044
PROBLEM SET A
Problem 18-1A (20 minutes)
The managerial accounting professional must do more than assign value to
ending inventory and cost of goods sold. S/he must understand the
industry and the current business environment of the company. The
Problem 18-2A (60 minutes)
Instructor note: There can be more than one right answer to this problem. Students can
experience some challenges in completing this assignment. Their reaction is normal and a part of
the process in learning how difficult it is to make estimates of opportunity costs.
A good answer to this problem should show estimates for:
A good answer would also show that purchasing a lower-quality product at
a lower cost will result, under the conditions specified in this case, in
losing money in the long-run. Specifically, the answer should appear
similar to the following:
Fundamental Accounting Principles, 21st Edition
1046
Problem 18-3A (45 minutes)
Part 1 Cost classification and amounts
Cost by Behavior
Cost by Function
Costs
Variable
Fixed
Product
Period
1.
Plastic for casing—$17,000 ……………...
$17,000
$17,000
2.
Wages of assembly workers—$82,000 …
82,000
82,000
3.
Property taxes on factory—$5,000 …….
$ 5,000
5,000
4.
Accounting staff salaries—$35,000 …...
35,000
$35,000
5.
Drum stands (1,000 stands
outsourced)—$26,000 ………………...
26,000
26,000
6.
Rent cost of equipment for sales
staff—$10,000 …………………………….
10,000
10,000
7.
Upper mgmt. salaries—$125,000 ……….
125,000
125,000
8.
Annual flat fee paid for maintenance
service—$10,000 ………………………..
10,000
10,000
9.
Sales commissions—$15 per unit ……..
$15 x units
sold
$15 x units
sold
10.
Machinery depreciation, straight-
line—$40,000 ……………………………..
40,000
40,000
Part 2
DrumBeat
Calculation of Manufacturing Cost per Drum Set
For Year Ended December 31, 2013
Item
Total cost
(at 1,000 units)
Per unit cost*
Variable production costs
Plastic for casing ……………………………………
$ 17,000
$ 17
Wages of assembly workers ……………………
82,000
82
Drum stands …………………………………………..
26,000
26
Total variable production costs……………….
125,000
125
Fixed production costs
Property taxes on factory ……………………….
5,000
5
Annual fee for maintenance service ………..
10,000
10
Machinery depreciation …………………………..
40,000
40
Total fixed production costs ……………………
55,000
55
Total production cost ……………………………….
$180,000
$180
*Total cost / 1,000 drum sets
Problem 18-3A (continued)
Part 3
If 1,200 drum sets are produced, we would expect the cost of the plastic for
Part 4
If 1,200 drum sets are produced, we would expect the cost of the property
Problem 18-4A (30 minutes)
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
The memorandum content should include the following points:
Product and period costs are different. Product costs are defined as
direct material, direct labor, and factory overhead. Moreover, product
costs are capitalized and expensed as goods are sold. All other costs,
such as administrative and selling expenses, are reported and expensed
in the period incurred and are called period costs. Period costs are the
types of expenses usually identified as operating expenses.
Product costs can be further understood by thinking about what takes
place in the production process. Direct material and direct labor are
primary components to the production process, thus these costs are
labeled prime costs. Direct labor and factory overhead are key resources
merchandising business does not have to be concerned with prime and
conversion costs. Purchases are the only product cost category for a
merchandiser.
Problem 18-5A (40 minutes)
Part 1
Units and dollar amounts of raw materials inventory in heels
Beginning inventory, December 31, 2012 (1,200 units x $8) …..….
$ 9,600
Purchases during 2013 (35,000 units x $8) ……………………………….
280,000
Inventory available for production ………………………………………….
289,600
Ending inventory, December 31, 2013
([1,200 + 35,000 – 33,200*] units x $8) ………………………………..….
24,000
Inventory transferred into production …………………………………..….
$265,600
**
*Note: 16,600 pairs of boots manufactured require 33,200 heels.
** (33,200 heels x $8)
Part 2 Analysis Component
Topics of discussion for this memorandum include:
• Description (general) of the JIT inventory system and how it operates.
• Cutting the heel inventory in half would free up $12,000 of working
capital (3,000 units x ½ x $8 cost).
Fundamental Accounting Principles, 21st Edition
Problem 18-6A (40 minutes)
Part 1
MERCHANDISING BUSINESS
SPORTS WORLD RETAIL
Partial Income Statement
For Year Ended December 31, 2013
Cost of goods sold
Merchandise inventory, December 31, 2012 ……………………..……
$ 200,000
Merchandise purchases …………………………………………………..…..
300,000
Goods available for sale ………………………………………………….……
500,000
Less merchandise inventory, December 31, 2013 ……………..……
175,000
Cost of goods sold ………………………………………………………….……
$ 325,000
MANUFACTURING BUSINESS
SNO–BOARD MFG.
Partial Income Statement
For Year Ended December 31, 2013
Cost of goods sold
Finished goods inventory, December 31, 2012………………….……
$ 500,000
Cost of goods manufactured …………………………………………………
875,000
Goods available for sale ………………………………………………….……
1,375,000
Less finished goods inventory, December 31, 2013 ………….……
225,000
Cost of goods sold ………………………………………………………….……
$1,150,000
Part 2
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
The answers will vary but should include:
• The Merchandise Inventory account on December 31 for Sports World and
the Finished Goods Inventory account on December 31 for Sno-Board are
computed and reported on the income statement as part of cost of goods
sold.
• The inventory accounts must also be included in the current asset section
of the balance sheet. Since Sno-Board is a manufacturer, it will also have
raw materials and goods in process inventory accounts.
Problem 18-7A (75 minutes)
Part 1
DE LEON COMPANY
Manufacturing Statement
For Year Ended December 31, 2013
Direct materials
Raw materials inventory, December 31, 2012 …….…
$
166,850
Raw materials purchases ………………………………….…
925,000
Raw materials available for use ………………………..…
1,091,850
Less raw materials inventory, December 31, 2013 ..…
182,000
Direct materials used ……………………………………….…
$ 909,850
Direct labor ……………………………………………………………
675,480
Factory overhead
Depreciation expense—Factory equipment ……….…
33,550
Factory supervision ………………………………………….…
102,600
Factory supplies used …………………………………………
7,350
Factory utilities ………………………………………………..…
33,000
Indirect labor ………………………………………………………
56,875
Miscellaneous production costs ……………………….…
8,425
Rent expense—Factory building ……………………….…
76,800
Maintenance expense—Factory equipment ……….…
35,400
Total factory overhead costs …………………………….…
354,000
Total manufacturing costs …………………………………..…
1,939,330
Goods in process inventory, December 31, 2012 ….…
15,700
Total cost of goods in process …………………………….…
1,955,030
Less goods in process inventory, December 31, 2013 ..…
19,380
Cost of goods manufactured …………………………..…..…
$1,935,650
Fundamental Accounting Principles, 21st Edition
1052
Problem 18-7A (Continued)
Part 2
DE LEON COMPANY
Income Statement
For Year Ended December 31, 2013
Sales …………………………………………………………………..…
$4,525,000
Less sales discounts …………………………………………..…
62,500
Net sales …………………………………………………………….…
4,462,500
Cost of goods sold
Finished goods inventory, December 31, 2012………
$
167,350
Cost of goods manufactured ……………………………..…
1,935,650
Goods available for sale ………………………………………
2,103,000
Less finished goods inventory, December 31, 2013 ….…
136,490
Cost of goods sold ………………………………………………
1,966,510
Gross profit from sales ……………………………………….…
2,495,990
Operating expenses
Selling expenses
Advertising expense ………………………………………..…
28,750
Depreciation expense—Selling equipment ……….…
8,600
Rent expense—Selling space …………………………..
26,100
Sales salaries expense …………………………………….…
392,560
Total selling expenses …………………………………….…
456,010
General and administrative expenses
Depreciation expense—Office equipment ……………
7,250
Office salaries expense ………………………………………
63,000
Rent expense—Office space ………………………………
22,000
Total general and administrative expenses …………
92,250
Total operating expenses ………………………………….…
548,260
Income before state and federal taxes ……………………
1,947,730
Income taxes expense ……………………………………………
233,725
Net income ……………………………………………………………
$1,714,005
Problem 18-7A (Continued)
Part 3
Raw
Materials
Finished
Goods
Cost of raw materials used ……………………………………………..
$909,850
Cost of finished goods sold …………………………………….……..
$1,966,510
Beginning inventory ………………………………………………..……..
$166,850
$ 167,350
Ending inventory……………………………………………………....
182,000
136,490
Total beginning plus ending inventory ……………………..……
$348,850
$ 303,840
Average inventory (Total / 2) …………………………………………..
$174,425
$ 151,920
Inventory turnover (COGS* / Average inventory) ……………..
5.2
12.9
Days’ sales in inventory [(Ending inv./COGS*) x 365] .……..
73.0
25.3
* To calculate the turnover and days’ sales in inventory for raw materials, use raw materials used
rather than cost of goods sold.
Discussion: The inventory turnover ratio for the raw materials inventory is
significantly lower than the turnover ratio for finished goods.
One reason for the difference could be that source of supply for raw materials
is relatively undependable, so that management believes it is necessary to
carry a larger inventory to sustain operations through periods when the
sales by not having enough product on hand.
Similar inferences are drawn from the days’ sales in inventory ratio results. In
Problem 18-8A (10 minutes)