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Chapter 14
QUESTIONS
1. The managerial accountant plays an important role in preparing the information
necessary for effective planning and control decisions. One example is the budget,
2.
Financial Accounting
Managerial Accounting
(a) Users and decision
makers
Investors, creditors, and
other users external to the
organization
Managers, employees, and
decision makers internal to
the organization
(b) Purpose of
information
Assist external users in
making investment, credit,
and other decisions
Assist managers in making
planning and control
decisions
(c) Flexibility of practice
Structured and often
controlled by GAAP
Relatively flexible (no
GAAP)
(d) Time dimension
Historical information with
minimum predictions
Many projections and
estimates; historical
information also presented
(e) Focus of information
Emphasis on whole
organization
Emphasis on projects,
processes, and subdivision
of an organization
(f) Nature of
information
Monetary information
Mostly monetary; but also
nonmonetary information
3. A customer orientation has led companies to adopt the principles of the lean
business model in response to consumer demands. The essence of customer
4. Direct labor refers to the efforts of employees who physically convert materials to
product.
5. Factory overhead is limited to indirect costs that are incurred in the production
process. That is, it consists of activities that support the production process, such
6. Direct materials are raw materials that physically become part of the product and
can be clearly traced to specific units or batches of product. Indirect materials are
7. Direct labor can be either a prime cost or a conversion cost.
8. Direct costs include: costs of materials such as circuit boards, wires, television
tubes, smartphone cameras, memory chips, and processors, as well as the labor of
9. The production manager should likely not be evaluated on the basis of operating
10. Management usually must be able to predict financial performance to be successful.
11. Product costs are capitalized because they represent a future value (an asset) to the
period.
12. A manufacturing business produces a product, whereas in a merchandising or
service business this is not the case. In making a product, the manufacturing
13. To run a successful business, management must make predictions and estimates
14. A manufacturing firm converts raw materials into finished products. A
manufacturing company would report three types of inventories on its balance
sheet: raw materials, work in process, and finished goods. The finished goods are
15. Manufacturers’ balance sheets usually include small tools, factory buildings, factory
16. Manufacturing firms have inventories at various states of completion. Manufacturing
a product requires raw materials, which are converted to finished goods.
17. Manufacturing activities of a company are described in the Schedule of Cost of
18. The three categories of manufacturing costs are: direct materials, direct labor, and
19. Examples of factory overhead costs include: indirect materials, indirect labor,
depreciation of the factory equipment and plant, amortization of patents, the cost of
20.
Components of Schedule of COGM
Apple Examples
Direct material ................................................................
Processors, chips, covers
Direct labor ................................................................
Wages of production employees
Factory overhead ..............................................................
Factory heat, factory lighting
Computation of cost of goods manufactured .................
Computation (see Exhibit 14.16)
21.
Google
Schedule of Cost of Goods Manufactured
For Year Ended December 31, 2015
22. The income statement describes the revenues and expenses for the year. Included
in the calculation of the cost of goods sold is a line item identified as the cost of
23. Raw materials inventory turnover and days’ sales in raw materials inventory can be
used to assess raw materials inventory management. Raw materials inventory
24. Yes. Apple can use the concepts and measures of cycle time and cycle efficiency to
25.
Inventory Components ($ millions)
Dell (February 1, 2013)
Production materials ........................................................
$ 593
Work in process ...............................................................
283
Finished goods ................................................................
506
Total inventories ...............................................................
$1,382
Quick Study 14-1 (5 minutes)
1. Its primary users are company managers.
Managerial
2. Its information is often available only after an audit is
complete.
Financial
3. Its primary focus is on the organization as a whole.
Financial
4. Its principles and practices are very flexible.
Managerial
Quick Study 14-2 (5 minutes)
1. At her normal usage, your sister’s total cost with Plan A is $80 (fixed).
($0.10 x 1,600).
2. If her usage doubles, your sister’s total cost remains fixed at $80 under
Quick Study 14-3 (5 minutes)
1. Indirect cost
2. Direct cost
3. Indirect cost
4. Indirect cost
5. Direct cost
Quick Study 14-4 (10 minutes)
1. Direct materials
2. Factory overhead
3. Direct labor
4. Factory overhead
5. Factory overhead
6. Direct materials
Quick Study 14-5 (10 minutes)
1. Product cost
2. Period cost
3. Product cost
4. Period cost
5. Product cost
6. Period cost
7. Period cost
8. Product cost
Quick Study 14-6 (5 minutes)
Ending work in process inventory is computed as:
Raw materials used in production .....................................................
$74,300
Direct labor used in production..........................................................
55,000
Factory overhead used in production ...............................................
95,700
Total manufacturing costs ..................................................................
225,000
Add work in process inventory, beginning of year ..........................
26,500
Total cost of work in process .............................................................
Less cost of goods manufactured .....................................................
251,500
221,800
Work in process inventory, end of year ............................................
$ 29,700
Beg. Inv. 26,500
RM 74,300
DL 55,000
OH 95,700
Avail 251,500
221,800 COGM
End. Inv. 29,700
Work in Process Inventory
Quick Study 14-7 (10 minutes)
Finished goods inventory, December 31, 2014 ..........................
$ 345,000
Plus cost of goods manufactured ...............................................
918,700
Cost of goods available for sale ..................................................
1,263,700
Less finished goods inventory, December 31, 2105…………
283,600
Cost of goods sold ........................................................................
$ 980,100
Beg. Inv. 345,000
COGM 918,700
Avail 1,263,700
980,100 COGS
End. Inv. 283,600
Finished Goods Inventory
Quick Study 14-8 (10 minutes)
Cost of goods sold is computed as:
Beginning finished goods inventory .................................................
$ 500
Cost of goods manufactured ..............................................................
4,000
Goods available for sale......................................................................
4,500
Ending finished goods inventory .......................................................
750
Cost of goods sold ..............................................................................
$3,750
Quick Study 14-9 (5 minutes)
Total manufacturing cost is computed as:
Raw materials used in production .....................................................
$53,750
Direct labor used in production..........................................................
12,000
Factory overhead used in production* ..............................................
12,750
Total manufacturing costs ..................................................................
$78,500
*$8,000 + $3,500 + $1,250
Quick Study 14-10 (15 minutes)
Barton Company
Schedule of Cost of Goods Manufactured
For Year Ended December 31, 2015
Direct materials .....................................................................................
$190,500
Direct labor ...........................................................................................
63,150
Factory overhead costs ........................................................................
24,000
Total manufacturing costs ..................................................................
277,650
Add work in process, December 31, 2014...........................................
157,600
Total cost of work in process ...............................................................
435,250
Less work in process, December 31, 2015 .........................................
142,750
Cost of goods manufactured ...............................................................
$292,500
Beg. Inv. 157,600
RM 190,500
DL 63,150
OH 24,000
Avail 435,250
292,500 COGM
End. Inv. 142,750
Work in Process Inventory
Quick Study 14-11 (5 minutes)
Raw materials inventory, beginning ..........................................
$ 6,000
Plus raw materials purchased ....................................................
123,500
Raw materials available for use .................................................
129,500
Less raw materials inventory, ending ........................................
7,500
Raw materials used .....................................................................
$122,000
Quick Study 14-12 (10 minutes)
1. D
2. C
3. B
4. A
Quick Study 14-13 (5 minutes)
(Amounts in millions of Swiss francs)
Raw materials inventory, beginning ..........................................
3,815
Plus raw materials purchased ....................................................
13,860
Raw materials available for use .................................................
17,675
Less raw materials inventory, ending ........................................
3,499
Raw materials used .....................................................................
14,176
Beg. Inv. 3,815
Purchases 13,860
Avail for Use 17,675
14,176 Mtls. Used
End. Inv. 3,499
Raw Materials inventory
Quick Study 14-14 (10 minutes)
(in millions of Swiss francs)
Cost of raw materials used .......................................................
14,176
Beginning raw materials inventory ..........................................
3,815
Ending raw materials inventory ...............................................
3,499
Total beginning plus ending raw materials inventory ............
7,314
Average raw materials inventory (Total / 2) ............................
3,657
Inventory turnover (RM used / Average inventory) ................
3.88*
Days’ sales in inventory [(Ending inv./RM used*) x 365] ...........
90*
*Rounded
