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Managerial Accounting 4e Solutions Manual
Problems (Group B)
(30 min.) P2-47B
Reqs. 1, 2, and 3
Jazzy Cola
Value Chain Cost Classification
(In thousands)
Production
Cost
R&D
Design
Direct
Materials
Direct
Labor
Manufacturing
Overhead
Marketing
Distribution
Customer
Service
Truck drivers’
wages
$265
Lemon syrup
$20,000
Depreciation
on trucks
100
Lime flavoring
920
Payment for
new recipe
$1,190
Customer
hotline
190
Sales
commissions
400
Production
costs of “cents-
off” store
coupons for
customers
$ 470
Rearranging
plant layout
$1,500
Freight-in
1,700
Depreciation
on plant and
equipment
2,900
Bottles
1,210
Salt*
30
Plant utilities
$ 850
Wages of
workers who
mix syrup
$7,900
Plant janitors’
wages
1,050
Replace
products with
expired
dates
$ 60
Total costs
$1,090
$1,300
$21,070*
$8,200
$5,030
$1,070
$585
$235
*Salt’s low value makes it likely treated as indirect materials. However, some students may classify salt as direct
materials.
Req. 4
Total inventoriable product costs:
Direct materials...................................…..
$23,830
Direct labor..........................................…..
7,900
Manufacturing overhead.....................…..
4,830
Total inventoriable product costs.......….
$36,560
Chapter 2 Building Blocks of Managerial Accounting
(continued) P2-47B
(30 min.) P2-48B
Req. 1
The ending inventory costs derived from the following schedule are: Raw materials $143,000, Work in process
$239,000, and Finished goods $150,000.
Inventory Reconstruction Schedule
Raw materials inventory
Work in Process Inventory
Finished Goods Inventory
Beginning
inventory
$113,000 (G)
Beginning
Inventory
$ 229,000 (G)
Beginning
inventory
$ 154,000 (G)
+ Purchases
476,000 (G)
+ Direct Materials
Used
446,000e
+ Cost of goods
manufactured
1,186,000c
+ Direct labor
505,000 (G)
+ Manufacturing
Overhead
245,000 (G)
= Direct
Materials
available for
use
589,000
= Total
manufacturing
costs to
account for
1,425,000 (G)
= Cost of goods
available for sale
1,340,000 (G)
− Ending
inventory
143,000f
− Ending inventory
239,000d
− Ending inventory
150,000b
= Direct
Materials
used
$446,000e
= Cost of goods
manufactured
$1,186,000c
= Cost of goods
Sold
$1,190,000a
(G) = Amount given in the case.
aCost of good sold:
Sales
×
(1 − Gross profit %)
=
Cost of goods sold
$1,700,000
×
70%
=
$1,190,000
bEnding finished goods inventory:
Cost of goods available for sale
−
Ending finished goods inventory
=
Cost of goods sold
$1,340,000
−
Ending finished goods inventory
=
$1,190,000
Ending finished goods inventory
=
$ 150,000
cCost of goods manufactured:
Beginning finished goods inventory
+
Cost of goods manufactured
=
Cost of goods
available for sale
$154,000
+
Cost of goods manufactured
=
$1,340,000
Cost of goods manufactured
=
$1,186,000
Managerial Accounting 4e Solutions Manual
(continued) P2-48B
dEnding work in process inventory:
Total manufacturing
costs to account for
−
Ending work in process inventory
=
Cost of goods
manufactured
$1,425,000
−
Ending work in process inventory
=
$1,186,000
Ending work in process inventory
=
$ 239,000
eDirect materials used:
Beginning
work in process inventory
+
Direct + Direct + Manufacturing
material labor overhead
used
=
Total manufacturing costs
to account for
$229,000
+
Direct + $505,000 + $245,000
materials
used
=
$1,425,000
Direct materials used
=
$ 446,000
fEnding direct materials inventory:
Direct materials
available for use
−
Ending direct materials inventory
=
Direct materials used
$589,000
−
Ending direct materials inventory
=
$446,000
Ending direct materials inventory
=
$143,000
(45-55 min.) P2-49B
Part One:
Cost of goods sold calculation:
Beginning inventory
$ 12,000
Plus: Purchases and freight-in*
34,000
Cost of goods available for sale
46,000
Less: Ending inventory
(9,900)
Cost of goods sold
$ 36,100
Robin’s Roses
Income Statement
Year Ended December 31, 2013
Sales revenue
$59,000
Less: Cost of goods sold
36,100
Gross profit
22,900
Less operating expenses:
Utilities expense
$ 1,200
Rent expense
3,600
Sales commission expense
4,600
9,400
Operating income
$13,500
Chapter 2 Building Blocks of Managerial Accounting
(continued) P2-49B
Part Two:
Req. 1
Calculation of Direct Materials Used
Beginning Raw Materials Inventory
14,000
Plus: Purchases of direct materials, freight-in, and import
duties
35,000
Materials available for use
49,000
Less: Ending Raw Material Inventory
(10,500)
Direct materials used
38,500
Schedule of Cost of Goods Manufactured
Beginning Work in Process Inventory
-
Plus: Manufacturing costs incurred
Direct materials used (from previous schedule)
38,500
Direct labor
21,000
Manufacturing overhead ($4,400 + $1,050 + $8,600)
14,050
Total manufacturing costs to account for
73,550
Less: Ending Work in Process Inventory
(3,500)
Cost of goods manufactured
70,050
Calculation of Cost of Goods Sold
Beginning Finished Goods Inventory
-
Plus: Cost of goods manufactured (from previous schedule)
70,050
Cost of goods available for sale
70,050
Less: Ending Finished Goods Inventory
(6,500)
Cost of goods sold
63,550
Req. 2
Floral Manufacturing
Income Statement
For Year Ended December 31, 2014
Sales revenue
102,000
Less: Cost of goods sold (from previous schedule)
63,550
Gross profit
38,450
Less operating expenses:
Delivery expense
2,000
Sales salaries expense
4,700
Customer service hotline
1,100
Total operating expenses
7,800
Operating income
30,650
Managerial Accounting 4e Solutions Manual
(continued) P2-49B
Req. 3
A manufacturer’s cost of goods sold is based on its cost of goods manufactured. In contrast, a merchandiser’s cost of
Chapter 2 Building Blocks of Managerial Accounting
(15-20 min.) P2-51B
Req. 1
Monthly pizza volume
3,000
4,000
6,000
Total fixed costs
$ 6,000
$ 6,000
$ 6,000
Total variable costs
3,750
5,000
7,500
Total costs
$9,750
$11,000
$13,500
Fixed cost per pizza
$ 2.00
$ 1.50
$ 1.00
Variable cost per pizza
1.25
1.25
1.25
Average cost per pizza
$ 3.25
$ 2.75
$ 2.25
Sales price per pizza
$6.00
$6.00
$6.00
Average profit per pizza
$ 2.75
$ 3.25
$ 3.75
Req. 2
Companies want to operate near or at full capacity to better utilize the resources they spend on fixed costs. The more
units they produce, the lower the average fixed cost per unit.
Req. 3
At the current volume, the restaurant’s monthly profit is $20,100 calculated as follows
Total Sales Revenue
− Total Costs
= Monthly Profit
($6.00 per pizza × 4,000
pizzas)
− $11,000
= $13,000
Managerial Accounting 4e Solutions Manual
Discussion & Analysis
A2-52
1. Briefly describe a service company, a merchandising company, and a manufacturing company. Give an example
of each type of company, but do not use the same examples as given in the chapter.
2. How do service, merchandising, and manufacturing companies differ from each other? How are service,
merchandising, and manufacturing companies similar to each other? List as many similarities and differences as
you can identify.
Differ:
3. What is the value chain? What are the six types of business activities found in the value chain? Which type(s) of
business activities in the value chain generate costs that go directly to the income statement once incurred?
What type(s) of business activities in the value chain generate costs that flow into inventory on the balance
sheet?
The value chain is the activities that add value to a firm’s products and services. The six types of business activities
4. Compare direct costs to indirect costs. Give an example of a cost at a company that could be a direct cost at one
level of the organization but would be considered an indirect cost at a different level of that organization.
Explain why this same cost could be both direct and indirect (at different levels).
Chapter 2 Building Blocks of Managerial Accounting
(continued) A2-52
5. What is meant by the term “inventoriable product costs”? What is meant by the term “period costs”? Why
does it matter whether a cost is an inventoriable product cost or a period cost?
6. Compare inventoriable product costs to period costs. Using a product of your choice, give examples of
inventoriable product costs and period costs. Explain why you categorized your costs as you did.
7. Describe how the income statement of a merchandising company differs from the income statement of a
manufacturing company. Also comment on how the income statement from a merchandising company is similar
to the income statement of a manufacturing company.
8. How are the cost of goods manufactured, the cost of goods sold, the income statement, and the balance sheet
related for a manufacturing company? What specific items flow from one statement or schedule to the next?
Describe the flow of costs between the cost of goods manufactured, the cost of goods sold, the income
statement, and the balance sheet for a manufacturing company.
9. What makes a cost relevant or irrelevant when making a decision? Suppose a company is evaluating whether to
use its warehouse for storage of its own inventory or whether to rent it out to a local theater group for housing
props. Describe what information might be relevant when making that decision.
Managerial Accounting 4e Solutions Manual
(continued) A2-52
10. Explain why “differential cost” and “variable cost” do not have the same meaning. Give an example of a situation
in which there is a cost that is a differential cost but not a variable cost.
11. Greenwashing, the practice of overstating a company’s commitment to sustainability, has been in the news over
12. In the chapter, Ricoh was mentioned as a company that has designed its copiers so that at the end of the copier’s
life, Ricoh will collect and dismantle the product for usable parts, shred the metal casing, and use the parts and
Chapter 2 Building Blocks of Managerial Accounting
Application & Analysis
A2-53
Basic Discussion Questions
1. Describe the product that is being produced and the company that produces it.
2. Describe the six value chain business activities that this product would pass through from its inception to its
ultimate delivery to the customer.
3. List at least three costs that would be incurred in each of the six business activities in the value chain.
• R&D – investigating new fabrics, customer needs surveys, innovation
4. Classify each cost you identified in the value chain as either being an inventoriable product cost or a period cost.
Explain your justification.
5. A cost object can be anything for which managers want a separate measurement of cost. List three different
potential cost objects other than the product itself for the company you have selected.
6. List a direct cost and an indirect cost for each of the three different cost objects in #5. Explain why each cost
would be direct or indirect.
• Advertising
Managerial Accounting 4e Solutions Manual
A2-54
Ethics Mini-Case
1. If Joe were to increase income by adding sales commission costs and advertising costs to product costs, the
following ethical principles would be violated:
a. Competence: Perform professional duties in accordance with relevant laws, regulations, and technical
2. If Joe were to make the Company loan to Mike, it is not clear whether ethical principles would be violated. Making
3. Perhaps a third course of action would be to think of other alternatives, such as:
a. Refer Mike to a credit counseling service or to an employee assistance program
Chapter 2 Building Blocks of Managerial Accounting
A2-55
Real Life Mini-Case
1. Starbucks could be considered both a service company and a merchandiser. The café part of Starbucks would be
2. A typical value chain is composed of the following phases. Potential costs for a cup of coffee’s value chain are
included with each phase:
a. Research & Development: Performing research on the proper roasting methods for coffee beans and on the
various types of coffee beans that might be used
3. Starbucks cup of coffee served in Fairlawn, Ohio, café:
a. What costs:
i. Direct material: Coffee beans, water, cup, cup sleeve, milk, sugar
4. Starbucks café in Fairlawn, Ohio, and a pound of packaged coffee assuming coffee is ground at time of purchase
a. Costs of that pound of coffee
i. Direct material
5. Starbucks management would state that its retail stores “have more tools to absorb the increase because of other
costs included in the cost of a cup of coffee” because the coffee goes through several more steps in the store,
