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Chapter 2 Building Blocks of Managerial Accounting
(15 min.) E2-31B
Reqs. 1, 2, and 3
Req. 4
Total inventoriable product costs:
Direct materials……………………………………..….…
$ 69
Direct labor………………………………………
8
Manufacturing overhead……………………………
75
Total inventoriable product cost………………….
$152
Req. 5
Direct materials………………………………………...…
$ 69
Direct labor………………………………………
8
$ 77
Direct labor……………………………………………
$ 8
Manufacturing overhead……………………………
75
$ 83
Cost Classification
Production
R & D
Design
Direct
Materials
Direct
Labor
Manufacturing
Overhead
Marketing
Distribution
Customer
Service
Delivery expense
$ 6
Salaries of
salespeople
$ 4
Chip set
$62
Exterior case for phone
$ 7
Assembly-line
workers’ wages
$8
Technical support
hotline
$ 9
Depreciation on
plant and equipment
$75
Rearrange production
process
$5
1-800 (toll-free) line for
customer orders
$ 2
Scientists’ salaries
$12
-
Total costs
$12
$ 5
$69
$8
$75
$ 6
$ 6
$ 9
Chapter 2 Building Blocks of Managerial Accounting
(15-20 min.) E2-33B
Req. 1
DM
DL
IM
IL
Other
MOH
Period
a.
Airplane seats
$260
b.
Production supervisors’
salaries
$190
c.
Depreciation on forklifts
$90
d.
Machine lubricants
$20
e.
Factory janitors’ wages
$10
f.
Assembly workers’ wages
$610
g.
Property tax on
corporate marketing
offices
$15
h.
Plant utilities
$120
i.
Cost of warranty repairs
$215
j.
Machine operators’ health
insurance
$80
k.
Depreciation on
admin offices
$70
l.
Cost of designing new plant
layout
$170
m.
Jet engines
$1,000
TOTAL
$1,260
$690
$20
$200
$210
$470
Req. 2
Total manufacturing overhead costs
=
IM + IL + Other MOH
=
$20 + 200 + 210 = $430
Req. 3
Total inventoriable product costs
=
DM + DL + MOH
=
$1,260 + 690 + 430 = $2,380
Req. 4
Total prime costs
=
DM + DL
=
$1,260 + 690 = $1,950
Req. 5
Total conversion costs
=
DL + MOH
=
$690 + 430 = $1,120
Req. 6
Total period costs
=
$470
Managerial Accounting 4e Solutions Manual
(10 min.) E2-34B
Current Assets
Current assets:
Cash
$ 15,200
Accounts receivable
84,000
Inventories:
Raw materials inventory
$ 10,200
Work in process inventory
37,000
Finished goods inventory
66,000
Total inventories
113,200
Prepaid expenses
5,800
Total current assets
$218,200
The company must be a manufacturer, because it has three kinds of inventory: raw materials, work in process, and
finished goods.
(10-15 min.) E2-35B
Cost of goods sold calculation:
Beginning inventory
$ 18,000
Plus: Purchases and freight-in*
658,000
Cost of goods available for sale
676,000
Less: Ending inventory
(16,000)
Cost of goods sold
$ 660,000
Pretty Pets
Income Statement
For Current Year
Sales revenue
$ 1,125,000
Less: Cost of goods sold
(660,000)
Gross profit
465,000
Less operating expenses:
Web site expenses
$ 58,000
Marketing expenses
32,500
Freight-out expenses
28,500
Total operating expenses
(119,000)
Operating income
$ 346,000
*purchases of $636,000 + freight-in of $22,000 = $658,000
Managerial Accounting 4e Solutions Manual
(15-20 min.) E2-37B
Calculation of Direct Materials Used
Beginning Raw Materials Inventory
$ 21,000
Plus: Purchases of direct materials
70,000
Materials available for use
$ 91,000
Less: Ending Raw Material Inventory
(30,000)
Direct materials used
$ 61,000
Schedule of Cost of Goods Manufactured
Beginning Work in Process Inventory
$ 41,000
Plus: Manufacturing costs incurred
Direct materials used (from previous schedule)
61,000
Direct labor
87,000
Manufacturing overhead (43,000 + 8,500 +
13,300 + 3,700)
68,500
Total manufacturing costs to account for
$ 257,500
Less: Ending Work in Process Inventory
(34,000)
Cost of goods manufactured
$ 223,500
Calculation of Cost of Goods Sold
Beginning Finished Goods Inventory
$ 15,000
Plus: Cost of goods manufactured (from previous schedule)
223,500
Cost of goods available for sale
$ 238,500
Less: Ending Finished Goods Inventory
(28,000)
Cost of goods sold
$ 210,500
Managerial Accounting 4e Solutions Manual
(25 min.) E2-39B
Instructional note: This is a fairly challenging exercise that requires students to work backwards through financial
statement elements.
a.
Revenues
$27,200
Less: Cost of goods sold
14,900
Gross profit
$12,300
b. To determine beginning raw materials inventory, start with the materials used computation and work backwards:
Beginning raw materials inventory
$ 2,100
Plus: Purchases of direct materials
9,700
Available for use
11,800
Less: Ending raw materials inventory
(3,600)
Direct materials used
$ 8,200
c. To determine ending finished goods inventory, start by computing the cost of goods manufactured:
Beginning work in process inventory
$ 0
Plus: Manufacturing costs incurred:
Direct materials used
$8,200
Direct labor
3,500
Manufacturing overhead
6,300
18,000
Total manufacturing costs to account for
18,000
Less: Ending work in process inventory
(1,600)
Cost of goods manufactured
$16,400
Now use the cost of goods sold computation to determine ending finished goods inventory:
Beginning finished goods inventory
$ 4,900
Plus: Cost of goods manufactured (from above)
16,400
Cost of goods available for sale
21,300
Less: Ending finished goods inventory
(6,400)
Cost of goods sold (from part A)
$14,900
Chapter 2 Building Blocks of Managerial Accounting
(15-20 min.) E2-40B
a. The purchase price of the old computer when replacing it
with a new computer with improved features
Irrelevant
b. The cost of renovations when deciding whether to build a
new office building or to renovate the existing office building
Relevant
c. The original cost of the current stove when selecting a new,
more efficient stove for a restaurant
Irrelevant
d. Local tax incentives when selecting the location of a new
office complex for a company’s headquarters
Relevant
e. The fair market value (trade-in value) of the existing forklift
when deciding whether to replace it with a new, more efficient
model
Relevant
f. Fuel economy when purchasing new trucks for the delivery
fleet
Relevant.
g. The cost of production when determining whether to
continue to manufacture the screen for a smartphone or to
purchase it from an outside supplier
Relevant
h. The cost of land when determining where to build a new call
center
Relevant
i. The average cost of vehicle operation when purchasing a new
delivery van
Relevant
j. Real estate property tax rates when selecting the location for
a new order processing center
Relevant
1)
Variable costs
=
20,000,000 units × $1 / unit
=
$20,000,000
+ Fixed costs
=
3,000,000
= Total costs
=
$23,000,000
2)
$23,000,000
÷
20,000,000 units
=
$1.15 per unit
3)
$ 3,000,000
÷
20,000,000 units
=
$0.15 per unit
4)
Variable costs
=
30,000,000 units × $1 / unit
=
$30,000,000
+ Fixed costs
=
3,000,000
= Total costs
=
$33,000,000
5)
$33,000,000
÷
30,000,000 units
=
$1.10 per unit
6)
$ 3,000,000
÷
30,000,000 units
=
$0.10 per unit
7)
The average product cost increases as production volume
increases because the company is spreading its fixed costs over
10 million more units. The company will be operating more
efficiently, so the average cost of making each unit decreases.
Managerial Accounting 4e Solutions Manual
Problems (Group A)
(30 min.) P2-42A
Reqs. 1, 2, and 3
Rootstown Cola
Value Chain Cost Classification
(In thousands)
Production
Cost
R&D
Design
Direct
Materials
Direct
Labor
Manufacturing
Overhead
Marketing
Distribution
Customer
Service
Plant janitors’
wages
950
Truck drivers’
wages
$285
Payment for
new recipe
$1,090
Depreciation
on delivery
trucks
300
Plant utilities
$ 850
Lime flavoring
$1,080
Rearranging
plant layout
$1,300
Bottles
$1,390
Salt*
30
Sales
commissions
400
Production
costs of
“cents-off”
store coupons
for customers
$ 670
Lemon syrup
$17,000
Replace
products with
expired
dates
$ 35
Depreciation
on plant and
equipment
3,200
Wages of
workers who
mix syrup
$8,200
Customer
hotline
200
Freight-in
1,600
Total costs
$1,090
$1,300
$21,070*
$8,200
$5,030
$1,070
$585
$235
Managerial Accounting 4e Solutions Manual
P2-43A (continued)
dEnding work in process inventory:
Total manufacturing
costs to account for
−
Ending work in process inventory
=
Cost of goods
manufactured
$1,515,000
−
Ending work in process inventory
=
$1,228,000
Ending work in process inventory
=
$ 287,000
eDirect materials used:
Beginning
work in process inventory
+
Direct + Direct + Manufacturing
material labor overhead
used
=
Total manufacturing costs
to account for
$206,000
+
Direct + $523,000 + $213,000
materials
used
=
$1,515,000
Direct materials used
=
$ 573,000
fEnding direct materials inventory:
Direct materials
available for use
−
Ending direct materials inventory
=
Direct materials used
$626,000
−
Ending direct materials inventory
=
$573,000
Ending direct materials inventory
=
$53,000
(45-55 min.) P2-44A
Part One:
Cost of goods sold calculation:
Beginning inventory
$ 12,700
Plus: Purchases and freight-in*
37,000
Cost of goods available for sale
49,700
Less: Ending inventory
(9,600)
Cost of goods sold
$ 40,100
Penny’s Posies
Income Statement
Year Ended December 31, 2013
Sales revenue
$53,000
Less: Cost of goods sold
40,100
Gross profit
12,900
Less operating expenses:
Utilities expense
$ 1,400
Rent expense
4,600
Sales commission expense
4,900
10,900
Operating income
$2,000
Managerial Accounting 4e Solutions Manual
P2-44A (continued)
Part Three: Reqs. 1 and 2
Penny’s Posies Floral
Floral Manufacturing
Partial Balance Sheet
Partial Balance Sheet
December 31, 2013
December 31, 2014
Inventory...........
$9,600
Raw materials inventory......
$ 6,500
Work in process inventory..
3,500
Finished goods inventory…
4,000
Total inventory............……..
$14,000
(10 min.) P2-45A
1) As shown below, the quantitative data suggests you would net $6,800 more by taking Job #1 and living at home.
Attributes:
Take Job #1 and live at home
Take Job #2 and rent an
apartment
Salary
$45,000
$50,000
Rent
0
(9,000)
Food
0
(2,000)
Cable and Internet
0
(800)
Salary, net of living expenses
$45,000
$38,200
Net Difference = $45,000 − $38,200 = $6,800
2) The costs of doing laundry, operating the car, and paying for cell phone service are irrelevant because they do not
differ between the two alternatives.
4) If you want Job #2 and you want to live at home, you will benefit by the higher salary and the lower living
