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EXERCISES
Exercise 14-1 (10 minutes)
Primary Information
Source
Financial
Managerial
Financial
Managerial
Managerial
Managerial
Financial
Managerial
5. Plan the budget for next quarter
6. Measure profitability of an individual store
7. Prepare financial reports according to GAAP
8. Determine location and size for a new plant
Business Decision
1. Determine whether to lend to a company
2. Evaluate a purchasing department’s performance
3. Report financial performance to board of directors
4. Estimate product cost for new line of shoes
Exercise 14-2 (20 minutes)
Product Cost
Variable
or Fixed
Direct
or Indirect
1. Leather cover for soccer balls Variable Direct
2. Annual flat fee paid for office security Fixed Indirect
3. Coolants for machinery Fixed Indirect
4. Wages of assembly workers Variable Direct
5. Lace to hold the leather together Variable Indirect
6. Taxes on factory Fixed Indirect
7. Machinery depreciation (straight-line) Fixed Indirect
Most fixed costs are indirect. Fixed costs normally are resources acquired to
support the production process rather than being traceable to individual
products or batches of product. However, not all indirect costs are fixed.
Exercise 14-3 (10 minutes)
1. Fixed, indirect
2. Fixed, indirect
3. Variable, direct
4. Fixed, indirect
5. Fixed, indirect
6. Variable, direct
Exercise 14-4 (20 minutes)
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. Maintenance worker wages .................
X
X
9. Customer service salaries ...................
X
X
Exercise 14-5 (15 minutes)
1. Direct material
2. Factory overhead
3. Direct labor
4. General and administrative expense
5. Factory overhead
6. Factory overhead
7. Selling expense
8. Factory overhead
Exercise 14-6 (20 minutes)
1) Factory utilities Product Overhead Conversion
2) Advertising Period NA NA
3)
Amortization of patents on factory
machine
Product Overhead Conversion
4) State and federal income tax Period NA NA
5) Office supplies used Period NA NA
6) Insurance on factory bldg. Product Overhead Conversion
7) Wages to assembly workers Product Direct Labor
Prime and
Conversion
Exercise 14-7 (20 minutes)
Part 1
Company 1, Sunrise Foods, is a merchandising firm with only one
Exercise 14-7 (concluded)
Part 2
Company 1
Sunrise Foods
Balance Sheet--Current Asset Section
December 31, 2015
Cash ..............................................................................................................
$ 7,000
Accounts receivable ....................................................................................
62,000
Merchandise inventory ................................................................................
45,000
Prepaid expenses ........................................................................................
1,500
Total current assets .....................................................................................
$115,500
Company 2
Rayzer Skis Mfg.
Balance Sheet--Current Asset Section
December 31, 2015
Cash ..............................................................................................................
$ 5,000
Accounts receivable ....................................................................................
75,000
Raw materials inventory..............................................................................
42,000
Work in process inventory ................................................................
30,000
Finished goods inventory ................................................................
50,000
Prepaid expenses ........................................................................................
900
Total current assets .....................................................................................
$202,900
Discussion: The current asset section of the balance sheet for these two
companies differs because one is a merchandiser and one is a
manufacturer. Sunrise Foods purchases items for resale, so it has only
one type of inventory. Rayzer Mfg., on the other hand, must report its
inventories at the various stages of completion: Raw materials are items
not yet put into the process; work in process are items started but not
complete; and finished goods are ready for sale.
Exercise 14-8 (30 minutes)
Garcon
Company
Pepper
Company
1. COST OF GOODS MANUFACTURED
Direct materials
Beginning raw materials inventory .................
$ 7,250
$ 9,000
Raw materials purchases ................................
33,000
52,000
Raw materials available for use ......................
40,250
61,000
Less ending raw materials inventory ..............
5,300
7,200
Direct materials used........................................
34,950
53,800
Direct labor ...........................................................
19,000
35,000
Factory overhead
Rental cost on factory equipment ...................
27,000
22,750
Factory utilities .................................................
9,000
12,000
Factory supplies used ......................................
8,200
3,200
Indirect labor .....................................................
1,250
7,660
Repairs—Factory equipment ...........................
4,780
1,500
Total factory overhead .....................................
50,230
47,110
Total manufacturing costs ................................
104,180
135,910
Beginning work in process inventory ................
14,500
19,950
Total cost of work in process .............................
118,680
155,860
Less ending work in process inventory ............
22,000
16,000
Cost of goods manufactured ..............................
$ 96,680
$139,860
2. COST OF GOODS SOLD
Beginning finished goods inventory .................
$ 12,000
$ 16,450
Cost of goods manufactured ..............................
96,680
139,860
Cost of goods available for sale .........................
108,680
156,310
Less ending finished goods inventory ..............
17,650
13,300
Cost of goods sold ..............................................
$ 91,030
$143,010
E EExercise 14-9 (30 minutes)
GARCON COMPANY
Income Statement
For Year Ended December 31, 2015
Sales .............................................................................................
$ 195,030
Cost of goods sold (from Ex. 14-8) ...........................................
91,030
Gross profit .................................................................................
104,000
Operating expenses
Selling expenses ........................................................................
General and administrative expenses ................................
50,000
21,000
Income before tax .......................................................................
$ 33,000
PEPPER COMPANY
Income Statement
For Year Ended December 31, 2015
Sales .............................................................................................
$ 290,010
Cost of goods sold (from Ex. 14-8) ...........................................
143,010
Gross profit .................................................................................
147,000
Operating expenses
Selling expenses ........................................................................
General and administrative expenses ................................
46,000
43,000
Income before tax .......................................................................
$ 58,000
Exercise 14-9 (continued)
GARCON COMPANY
Partial Balance Sheet
As of December 31, 2015
Cash ..........................................................................................
$20,000
Accounts receivable, net.........................................................
13,200
Inventories
Raw materials inventory.......................................................
$ 5,300
Work in process inventory ...................................................
22,000
Finished goods inventory ....................................................
17,650
44,950
Total current assets ................................................................
$78,150
PEPPER COMPANY
Partial Balance Sheet
As of December 31, 2015
Cash ..........................................................................................
$15,700
Accounts receivable, net.........................................................
19,450
Inventories
Raw materials inventory.......................................................
$ 7,200
Work in process inventory ...................................................
16,000
Finished goods inventory ....................................................
13,300
36,500
Total current assets ................................................................
$71,650
Exercise 14-10 (20 minutes)
Garcon
Company
Pepper
Company
1. PRIME COSTS
Direct materials
Beginning raw materials inventory .................
$ 7,250
$ 9,000
Raw materials purchases ................................
33,000
52,000
Raw materials available for use ......................
40,250
61,000
Less ending raw materials inventory ..............
5,300
7,200
Direct materials used........................................
34,950
53,800
Direct labor ...........................................................
19,000
35,000
Total prime costs .................................................
2. CONVERSION COSTS
Direct labor ...........................................................
Factory overhead
$53,950
$19,000
$88,800
$35,000
Rental cost on factory equipment ...................
27,000
22,750
Factory utilities .................................................
9,000
12,000
Factory supplies used ......................................
8,200
3,200
Indirect labor .....................................................
1,250
7,660
Repairs—Factory equipment ...........................
4,780
1,500
Total factory overhead .....................................
50,230
47,110
Total conversion costs ........................................
$69,230
$82,110
Exercise 14-11 (20 minutes)
Merchandising Business
UNIMART
Partial Income Statement
For Year Ended December 31, 2015
Cost of goods sold
Merchandise inventory, December 31, 2014 ............................
$ 275,000
Merchandise purchases .............................................................
500,000
Goods available for sale.............................................................
775,000
Less merchandise inventory, December 31, 2015 ...................
115,000
Cost of goods sold ................................................................
$ 660,000
Beginning Inventory 275,000
Purchases 500,000
Goods available for sale 775,000
660,000 Cost of Goods Sold
Ending Inventory 115,000
Merchandise Inventory
Exercise 14-11 (concluded)
Manufacturing Business
PRECISION MANUFACTURING
Partial Income Statement
For Year Ended December 31, 2015
Cost of goods sold
Finished goods inventory, December 31, 2014 ....................
$ 450,000
Cost of goods manufactured .................................................
900,000
Goods available for sale.........................................................
1,350,000
Less finished goods inventory, December 31, 2015 ...........
375,000
Cost of goods sold ................................................................
$ 975,000
Beginning Inventory 450,000
Cost of Goods Manufactured 900,000
Goods available for sale 1,350,000
975,000 Cost of Goods Sold
Ending Inventory 375,000
Finished Goods Inventory
