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Problem 14-4B (40 minutes)
Part 1
Unit and dollar amounts of raw materials inventory in blades
Beginning inventory, December 31, 2014 2,500 $20 $50,000
Purchases during 2015 45,000 20 900,000
Inventory available for production 47,500 20 950,000
Less: Inventory transferred into production 41,500 20 830,000
Ending inventory, December 31, 2015 6,000 20 $120,000
Note: 20,750 pairs of skates require 41,500 blades.
Part 2
Topics of discussion for the memorandum include:
General description of the JIT inventory system and how it operates.
Cutting the blade inventory in half would free up $60,000 of working
capital (6,000 units x ½ x $20).
The funds freed up could be used to reduce debt, train employees, or
purchase new equipment.
The company would save on insurance, tracking, warehouse space,
time, and material handling costs if inventory is reduced.
Additional costs from a JIT system would arise from more frequent
ordering, deliveries, and possibly handling.
Problem 14-5B (40 minutes)
Part 1
MERCHANDISING BUSINESS
TEEMART
Partial Income Statement
For Year Ended December 31, 2015
Cost of goods sold
Merchandise inventory, December 31, 2014 ................................
$100,000
Merchandise purchases ................................................................
250,000
Goods available for sale................................................................
350,000
Less merchandise inventory, December 31, 2015 .......................
150,000
Cost of goods sold .........................................................................
$200,000
MANUFACTURING BUSINESS
AIM LABS
Partial Income Statement
For Year Ended December 31, 2015
Cost of goods sold
Finished goods inventory, December 31, 2014 ............................
$300,000
Cost of goods manufactured .........................................................
586,000
Goods available for sale................................................................
886,000
Less finished goods inventory, December 31, 2015 ...................
200,000
Cost of goods sold .........................................................................
$686,000
Part 2
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
The answers will vary slightly but should include:
The Merchandise Inventory account on December 31 for TeeMart and the
Finished Goods Inventory account on December 31 for Aim Labs 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 Aim Labs is a manufacturer, it will also have raw
materials and work in process inventory accounts.
1.
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.
Business Solutions
Schedule of Cost of Goods Manufactured
For Month Ended January 31, 2016
Direct materials .....................................................................................
$2,200
Direct labor ...........................................................................................
900
Factory overhead costs ................................................................
490
Total manufacturing costs ................................................................
3,590
Add work in process, December 31, 2015...........................................
0
Total cost of work in process ...............................................................
3,590
Less work in process, January 31, 2016 .............................................
540
Cost of goods manufactured ...............................................................
$3,050
3.
Business Solutions
Partial Income Statement
For Month Ended January 31, 2016
Cost of goods sold
Finished goods inventory, December 31, 2015 ....................
$ 0
Cost of goods manufactured .................................................
3,050
Goods available for sale .........................................................
3,050
Less finished goods inventory, January 31, 2016 ...............
350
Cost of goods sold................................................................
$2,700
1. Apple’s warranty reserve is established at the time the related revenue
is recognized, based on historical and projected warranty claim rates
and costs-per-claim. The company also considers knowledge of
2. It is commonly the managerial accountant’s responsibility to try to
3. Factors that could impact the warranty accrual include improved (or
4. Solutions depend on the annual report information collected.
1. The purpose of Apple’s audit committee is to:
a. Assist the Board in oversight and monitoring of:
i. the Corporation’s financial statements and other financial
information provided to shareholders and others;
2. The purpose of Google’s audit committee is to:
a. Oversee Google’s accounting and financial reporting processes.
3. Management accountants would be involved in:
Ensuring compliance with regulations.
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
behavior. This means that one’s response to the chief financial officer
