CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN)
INTRODUCTION TO MANAGERIAL ACCOUNTING
DISCUSSION QUESTIONS
1. Financial accounting and managerial accounting are different in several ways. Financial accounting
information is reported in statements that are useful to persons or groups outside of a company. These
statements objectively report the results of operations for fixed periods of time and the financial
2. a. Vertical units are structured as separate businesses within a company and normally develop and
sell products directly to customers. Horizontal units are not responsible for developing and selling
products, but provide services to other horizontal and vertical units within the company.
b. The accounting and legal departments are horizontal units within a company.
c. A consumer products division would be considered a vertical unit within a company.
3. Direct materials cost
6. The three inventory accounts for a manufacturing business are as follows:
a. Finished goods inventory consists of completed (or finished) products that have not been sold.
b. Work in process inventory consists of the direct materials, direct labor, and factory overhead
costs for products that have entered the manufacturing process, but are not yet completed.
c. Materials inventory consists of the costs of the direct and indirect materials that have not entered
the manufacturing process.
9. The manufacturing costs incurred during a period include direct materials used in production plus the
direct labor and factory overhead costs incurred during the period. The cost of goods manufactured
for a period is computed by adjusting the manufacturing costs incurred during the period for the
effects of beginning and ending work in process. Beginning work in process inventory is added and
ending work in process is subtracted from the manufacturing costs incurred during a period to arrive
at the cost of goods manufactured for the period.
10. A retail business purchases merchandise (products) in a finished state for resale to customers. The
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
BASIC EXERCISES
BE 15–1 (FIN MAN); BE 1–1 (MAN)
Planning (a)
BE 15–2 (FIN MAN); BE 1–2 (MAN)
a. DM (or FO if the cost is immaterially small)
BE 15–3 (FIN MAN); BE 1–3 (MAN)
a. P
b. B
c. C (or P if significant)
d. C
BE 15–4 (FIN MAN); BE 1–4 (MAN)
a. Period cost
BE 15–5 (FIN MAN); BE 1–5 (MAN)
a.
Work in process inventory, April 1 …………………………………………
Cost of direct materials used in production …………………………...
$280,000
$ 72,300
Direct labor ………………………………………………………………………….
Total manufacturing costs …………………………………………………….
324,000
b.
Finished goods inventory, April 1 ………………………………………….
$ 39,600
Cost of goods manufactured …………………………………………………
788,600
Cost of finished goods available for sale ……………………………….
Finished goods inventory, April 30 ………………………………………..
Cost of goods sold ……………………………………………………………….
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
BE 15–6 (FIN MAN); BE 1–6 (MAN)
a.
Number of Guests
Nights per Visit
Guest Nights
4,400
1
4,400
750
3
2,250
20
5
100
12,750
b. 15,000 available room nights (500 rooms × 30 nights in June)
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
EXERCISES
Ex. 15–1 (FIN MAN); Ex. 1–1 (MAN)
a.
Direct materials cost
f.
Factory overhead cost
b.
Direct materials cost
g.
Direct materials cost
c.
Factory overhead cost
h.
Direct materials cost
d.
Direct materials cost
Direct labor cost
Ex. 15–2 (FIN MAN); Ex. 1–2 (MAN)
a.
Factory overhead cost
f.
Factory overhead cost
b.
Factory overhead cost
g.
Direct materials cost
c.
Factory overhead cost
h.
Factory overhead cost
d.
Direct materials cost
Direct materials cost
e.
Direct materials cost
Direct labor cost
Ex. 15–3 (FIN MAN); Ex. 1–3 (MAN)
b, e, g, h
Ex. 15–4 (FIN MAN); Ex. 1–4 (MAN)
a.
b.
f.
Product cost
o.
Period cost
g.
Product cost
p.
Period cost
h.
Product cost
q.
Product cost
Period cost
Period cost
j.
k.
Product cost
Period cost
Ex. 15–5 (FIN MAN); Ex. 1–5 (MAN)
a.
cost object
e.
cost
b.
period
f.
work in process inventory
c.
conversion
g.
decreases
d.
improve
Ex. 15–6 (FIN MAN); Ex. 1–6 (MAN)
a.
electricity used to run assembly line
e.
improving
b.
prime
f.
indirect
c.
strategic
g.
period
d.
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
Ex. 15–7 (FIN MAN); Ex. 1–7 (MAN)
a.
indirect
g.
indirect
b.
direct
h.
indirect
c.
indirect
indirect
d.
indirect
indirect
direct
indirect
indirect
direct
Ex. 15–8 (FIN MAN); Ex. 1–8 (MAN)
a.
The errors in the manufacturing cost report are as follows:
1.
The maintenance salaries of $84,400 and indirect materials of $56,200 should be
included as factory overhead.
2.
The factory overhead incorrectly includes the following items: sales salaries of
b.
The corrected report is as follows:
Marching Ants Inc.
Manufacturing Costs
For the Quarter Ended June 30
Cost of direct materials used in production
$ 551,300
Direct labor
478,100
Factory overhead:
Maintenance salaries
$ 84,400
Indirect materials
Supervisor salaries
Heat, light, and power
Insurance and property taxes—plant
Depreciation—plant and equipment
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
Ex. 15–9 (FIN MAN); Ex. 1–9 (MAN)
a.
Sorensen Manufacturing Company
Income Statement
For the Month Ended January 31
Revenues
$1,200,000
Cost of goods sold
(675,000)
Gross profit
$ 525,000
Operating expenses:
Selling expenses
Administrative expenses
125,000
(340,000)
Net income
$ 185,000
b. Inventory balances on January 31:
Materials ($250,000 – $180,000) ……………………………………………………………….. $70,000
Work in Process ($180,000 + $450,000 + $180,000 – $760,000) …………………… $50,000
Finished Goods ($760,000 – $675,000) ……………………………………………………… $85,000
Ex. 15–10 (FIN MAN); Ex. 1–10 (MAN)
Diesel Additives Company
Balance Sheet
August 31
Current assets:
Cash
$167,500
Accounts receivable
348,200
Inventories:
$26,800
177,300
Supplies
Prepaid insurance
$715,800
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
Ex. 15–11 (FIN MAN); Ex. 1–11 (MAN)
Materials inventory, June 1 …………………………………………………………………….. $ 238,500
Materials purchased during June ……………………………………………………………. 845,700
Ex. 15–12 (FIN MAN); Ex. 1–12 (MAN)
a. $352,410 ($19,660 + $332,750)
Ex. 15–13 (FIN MAN); Ex. 1–13 (MAN)
Work in process inventory, October 1 …………………………………. $ 455,300
Manufacturing costs incurred during October:
Cost of direct materials used in production ……………………. $1,323,600
Direct labor ………………………………………………………………….. 1,680,000
Factory overhead………………………………………………………….. 3,544,200
Total manufacturing costs incurred ……………………………….. 6,547,800
Ex. 15–14 (FIN MAN); Ex. 1–14 (MAN)
a. $942,500 ($116,600 + $825,900)
b. $812,500 ($942,500 – $130,000)
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
Ex. 15–15 (FIN MAN); Ex. 1–15 (MAN)
a.
Johnstone Manufacturing Company
Statement of Cost of Goods Manufactured
For the Month Ended March 31
Work in process inventory, March 1
$ 435,900
Direct materials:
Materials inventory, March 1
$ 210,000
Purchases
2,666,200
Cost of materials available for use
$2,876,200
Materials inventory, March 31
(193,100)
Cost of direct materials used in
$2,683,100
Direct labor
3,500,000
Factory overhead:
Indirect labor
$ 320,000
Machinery depreciation
210,000
175,000
Supplies
Total factory overhead
815,600
Total manufacturing costs incurred in March
6,998,700
Total manufacturing costs
$7,434,600
Work in process inventory, March 31
(510,400)
Cost of goods manufactured
$6,924,200
b. Finished goods inventory, March 1 …………………………………………………………….. $ 586,200
Cost of goods manufactured ……………………………………………………….…………….. 6,924,200
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
Ex. 15–16 (FIN MAN); Ex. 1–16 (MAN)
a. Finished goods inventory, January 1 ………………………………….. $ 880,000
b. Sales ………………………………………………………………………………… $ 6,600,000
Cost of goods sold ……………………………………………………………. (4,595,000)
Gross profit ………………………………………………………………………. $ 2,005,000
c. Gross profit ………………………………………………………………………. $2,005,000
Operating expenses:
Ex. 15–17 (FIN MAN); Ex. 1–17 (MAN)
a. Sales ………………………………………………………………………………… $ 792,000
Less gross profit ………………………………………………………………. (462,000)
Cost of goods sold ……………………………………………………………. $ 330,000
c. Purchased materials …………………………………………………………. $244,200
Less materials inventory ……………………………………………………. (33,000)
Direct materials cost …………………………………………………………. $211,200
* $171,600 + $26,400
e. Total manufacturing costs …………………………………………………. $ 455,400
Less cost of goods manufactured ……………………………………… (396,000)
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
PROBLEMS
Prob. 15–1A (FIN MAN); Prob. 1–1A (MAN)
Cost
Product Costs
Period Costs
Direct
Materials
Cost
Direct
Labor
Cost
Factory
Overhead
Cost
Selling
Expense
Administrative
Expense
a.
X
b.
X
c.
X
d.
X
e.
X
f.
X
g.
X
h.
X
X
X
k.
X
X
X
n.
X
o.
X
p.
X
q.
X
r.
X
s.
X
t.
X
u.
X
X
x.
X
X
X
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
Prob. 15–2A (FIN MAN); Prob. 1–2A (MAN)
Cost
Product Costs
Period Costs
Direct
Materials
Cost
Direct
Labor
Cost
Factory
Overhead
Cost
Selling
Expense
Administrative
Expense
a.
X
b.
X
c.
X
d.
X
e.
X
X
g.
X
h.
X
i.
X
X
k.
X
l.
X
m.
X
n.
X
o.
X
p.
X
q.
X
r.
X
s.
X
X
u.
X
v.
X
X
x.
X
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
Prob. 15–3A (FIN MAN); Prob. 1–3A (MAN)
1. The most logical definition for the final cost object would be the patient. The reason is
that the cost can be accumulated at the patient level for billing and insurance
reimbursement purposes.
2.
Cost
Direct
Indirect
a.
X
b.
X
X
X
g.
i.
j.
X
k.
X
l.
X
m.
X
n.
X
X
X
q.
X
X
X
X
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
Prob. 15–4A (FIN MAN); Prob. 1–4A (MAN)
1. Rainier Company
a. $111,500 ($950,000 + $100,000 – $938,500)
b. $5,598,500 ($938,500 + $2,860,000 + $1,800,000)
Yakima Company
a. $708,200 ($48,200 + $710,000 – $50,000)
b. $1,330,000 ($2,484,200 – $708,200 – $446,000)
2.
Yakima Company
Statement of Cost of Goods Manufactured
For the Month Ended May 31
Work in process inventory, May 1
$ 176,400
Direct materials:
Materials inventory, May 1
$ 48,200
Purchases
710,000
Cost of materials available for use
$758,200
Materials inventory, May 31
(50,000)
$ 708,200
Direct labor
Factory overhead
446,000
Total manufacturing costs
Work in process inventory, May 31
Cost of goods manufactured
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
Prob. 15–4A (FIN MAN); Prob. 1–4A (MAN) (Concluded)
3.
Yakima Company
Income Statement
For the Month Ended May 31
Sales
$ 4,550,000
Cost of goods sold:
Finished goods inventory, May 1
$ 190,000
Cost of goods manufactured
2,491,500
Cost of finished goods available for sale
Finished goods inventory, May 31
Gross profit
$ 2,080,000
Operating expenses
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
Prob. 15–5A (FIN MAN); Prob. 1–5A (MAN)
1.
Robstown Corporation
Statement of Cost of Goods Manufactured
For the Year Ended December 31, 20Y8
Work in process inventory, January 1, 20Y8
$ 63,900
Direct materials:
Materials inventory, January 1, 20Y8
$ 44,250
Purchases
556,600
Cost of materials available for use
$600,850
$ 569,150
Direct labor
1,100,000
Factory overhead:
Indirect labor
$115,000
Depreciation expense—factory equipment
80,000
Heat, light, and power—factory
53,300
Property taxes—factory
40,000
Rent expense—factory
27,000
Supplies—factory
9,500
Miscellaneous costs—factory
11,400
336,200
Total manufacturing costs incurred in 20Y8
2,005,350
Total manufacturing costs
Work in process inventory, December 31, 20Y8
Cost of goods manufactured
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
Prob. 15–5A (FIN MAN); Prob. 1–5A (MAN) (Concluded)
2.
Robstown Corporation
Income Statement
For the Year Ended December 31, 20Y8
Sales
$ 3,850,000
Cost of goods sold:
Finished goods inventory, January 1, 20Y8
$ 101,200
Cost of goods manufactured
Cost of finished goods available for sale
Finished goods inventory,
Gross profit
$ 1,859,350
Operating expenses:
Administrative expenses:
Office salaries expense
$318,000
Depreciation expense—office
equipment
30,000
Property taxes—office building
25,000
$ 373,000
Selling expenses:
Advertising expense
$400,000
Sales salaries expense
Net income
CHAPTER 15 (FIN MAN); CHAPTER 1 (MAN) Introduction to Managerial Accounting
Prob. 15–1B (FIN MAN); Prob. 1–1B (MAN)
Cost
Product Costs
Period Costs
Direct
Materials
Cost
Direct
Labor
Cost
Factory
Overhead
Cost
Selling
Expense
Administrative
Expense
a.
X
b.
X
c.
X
d.
X
e.
X
X
g.
X
h.
i.
X
j.
X
k.
X
l.
X
m.
X
n.
X
o.
X
p.
X
q.
X
X
s.
X
X
u.
X
v.
X
X
x.
X
y.
X
X
* Item h might also be classified as direct material cost if the cost is significant because it can be
directly traced to the end product.