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Fundamental Accounting Principles, 21st Edition
1066
SERIAL PROBLEM — SP 18
Serial Problem, Success Systems (50 minutes)
1.
Cost by
Behavior .
Cost by
Traceability .
Product Costs
Variable
Fixed
Direct
Indirect
1. Monthly flat fee to clean workshop ........
X
X
2. Laminate coverings for desktops ...........
X
X
3. Taxes on assembly workshop ................
X
X
4. Glue to assemble workstation
component parts ......................................
X
X
5. Wages of desk assembler .......................
X
X
6. Electricity for workshop ..........................
X
X
7. Depreciation on tools ..............................
X
X
2.
Success Systems
Manufacturing Statement
For Month Ended January 31, 2014
Direct materials .....................................................................................
$2,200
Direct labor ...........................................................................................
900
Factory overhead costs ................................................................
490
Total manufacturing costs ................................................................
3,590
Add goods in process, December 31, 2013 ................................
0
Total cost of goods in process ............................................................
3,590
Less goods in process, January 31, 2014 ................................
540
Cost of goods manufactured ...............................................................
$3,050
3.
Success Systems
Partial Income Statement
For Month Ended January 31, 2014
Cost of goods sold
Finished goods inventory, December 31, 2013 ....................
$ 0
Cost of goods manufactured .................................................
3,050
Goods available for sale .........................................................
3,050
Less finished goods inventory, January 31, 2014 ...............
350
Cost of goods sold ................................................................
$2,700
Reporting in Action — BTN 18-1
1. The warranty period for Polaris’s products ranges from six months to
two years after sale, depending on the product. The warranty reserve is
established at the time of sale using management’s best estimate based
2. It is commonly the managerial accountant’s responsibility to try to
3. Factors that could impact the warranty accrual include improved
4. Solutions depend on the annual report information collected.
Fundamental Accounting Principles, 21st Edition
1068
Comparative Analysis — BTN 18-2
1. Warranty information for Polaris
($ thousands)
December
31, 2011
December
31, 2010
December
31, 2009
Additions charged to expense ........
$46,217
$43,721
$40,977
Warranty claims paid .......................
37,240
36,590
44,088
For 2009, Polaris’s warranty claims paid was higher than its warranty
2. Warranty information for Arctic Cat
($ thousands)
March 31,
2011
March 31,
2010
March 31,
2009
Warranty provision ...........................
$10,887
$11,437
$11,500
Warranty claim payments ................
10,915
13,062
12,292
For each of the three years, Arctic Cat’s warranty payments are higher
than its warranty provision (expense).
3. For these three years, Arctic Cat’s estimates of warranty costs are
slightly more accurate than those of Polaris. Arctic Cat’s total
warranty expense over the three years is $33,824, while it paid total
Ethics Challenge — BTN 18-3
1. Raw materials are part of inventory and should be capitalized (set up as
assets). Their costs are subsequently reported as part of cost of goods
2. The challenge is how to handle a request to use one’s accounting skills
in an inappropriate manner. It is important to remember that the
behavior of the managerial accountant is governed by rules of ethical
Communicating in Practice — BTN 18-4
Instructor note: The solution to this project depends on the database and career fields reviewed.
The objective of this Communicating in Practice project is to make
students aware of the earnings potential of different professions—
Fundamental Accounting Principles, 21st Edition
1070
Taking It to the Net — BTN 18-5
1. Standards of Ethical Conduct for Management Accountants are posted
at the Web site: http://www.IMAnet.org
These standards (in abbreviated form) are:
Competence – maintain an appropriate level of professional
competence.
3. The IMA suggests first trying to resolve ethical conflicts by applying the
policies of your organization. If this is unsuccessful, contact your
Teamwork in Action — BTN 18-6
Part 1
a. Materials used
= Beg. Materials
+ Materials purchased
- End. materials
= $177,500
+ $872,500
- $168,125
= $881,875
b. Factory overhead
c. Total manufacturing costs
d. Total cost of goods in process
e. Cost of goods manufactured
= Total cost of goods in process (from d) - Ending GIP Inventory
= $1,931,625 - $14,000
= $1,917,625
Part 2
Fundamental Accounting Principles, 21st Edition
1072
Teamwork in Action (Continued)
Part 3
a. Net sales
= Sales - Sales discounts
= $3,275,000 - $57,500
= $3,217,500
b. Cost of goods sold
c. Gross profit
d. Total operating expenses
e. Net income before taxes
= Gross profit (from c) - Total operating expenses (from d)
= $1,264,500 - $471,875
= $792,625
Entrepreneurial Decision — BTN 18-7
1. Manufacturing costs for Back to the Roots include (a) direct materials
such as coffee grounds, mushroom seeds, and water (b) direct labor
2. Four goals of a total quality management (TQM) process include reduced
waste, better inventory control, fewer defects, and continuous
Hitting the Road — BTN 18-8
Instructor note: Student responses will vary depending on the restaurant chosen.
The general framework of a good response includes:
1. The usual activities are
• serving customer at counter
2. Costs associated with each activity include
• Direct and indirect materials – such as meat, bread, pickles, and
other direct and indirect material costs.
3. Answers will vary because classification of fixed or variable depends
on the costs identified in part 2.
Global Decision — BTN 18-9
1. The Role of the Board of Directors section of the company’s website
identifies the board’s main responsibilities:
• Developing strategic guidelines for the company
2. Management accountants would be involved in:
• Helping to prepare the annual budgets.
• Providing information so that management of operations is
competent and prudent.
