Problem 14-1B (continued)
Part 2
Maxwell
Calculation of Manufacturing Cost per BD
Item
Total cost
(at 15,000 units)
Per unit cost *
Variable production costs
Plastic for BDs
$ 1,500
$ 0.10
Wages of assembly workers
30,000
2.00
Labeling
3,750
0.25
Total variable production costs
35,250
2.35
Fixed production costs
Machinery depreciation
18,000
1.20
Total fixed production costs
24,750
1.65
Part 3
If 10,000 BDs are produced, we would expect the cost of the plastic for the BDs to
decrease to $1,000 (10,000 BDs x $0.10/BD), but the cost per unit will stay at $0.10
per BD. Variable costs decrease in total as the number of units produced
decreases, but the unit cost remains constant.
Part 4
Problem 14–2B (30 minutes)
Costs
Product
Cost
Dir.
Mtls.
Dir.
Labor
Over-
head
Period
Cost
Selling
Gen. &
Admin
Advertising expense
X
X
Depr. expense-Office equip.
X
X
Depr. expense-Selling equip.
X
X
Depr. expense-Factory equip.
X
X
Factory supervision
X
X
Factory supplies used (indirect mtls)
X
X
Factory utilities
X
X
Direct labor
X
X
Indirect labor
X
X
Misc. production costs
X
X
Office salaries expense
X
X
Raw materials purchases (direct mtls)
X
Rent expense-Office space
X
X
Rent expense-Selling space
X
X
Rent expense-Factory equip.
X
X
Maint. expense-Factory equip.
X
X
Sales salaries expense
X
X
Problem 14-3B (75 minutes)
Part 1
BEST BIKES
Schedule of Cost of Goods Manufactured
For Year Ended December 31, 2019
Direct materials
Raw materials inventory, December 31, 2018 ……….
$ 40,375
Raw materials purchases …………………………………….
894,375
Raw materials available for use …………………………..
934,750
Less raw materials inventory, December 31, 2019 …
70,430
Direct materials used ………………………………………….
Depreciation expense—Factory equipment ………….
35,400
Factory supervision …………………………………………….
121,500
Factory supplies used (indirect materials) ………………….
6,060
Factory utilities …………………………………………………..
37,500
Indirect labor ………………………………………………………
59,000
Miscellaneous production costs ………………………….
8,440
Rent expense—Factory building ………………………….
93,500
Maintenance expense—Factory equipment ………….
30,375
Total factory overhead costs ……………………………….
391,775
Total manufacturing costs ……………………………………..
1,818,595
Work in process inventory, December 31, 2018 ………
12,500
Total cost of work in process …………………………………
1,831,095
14,100
Problem 14-3B (Continued)
Part 2
BEST BIKES
Income Statement
For Year Ended December 31, 2019
Sales ……………………………………………………………………..
$4,942,625
Cost of goods sold
Finished goods inventory, December 31, 2018………
$ 177,200
Cost of goods manufactured ………………………………..
1,816,995
Goods available for sale ………………………………………
1,994,195
Less finished goods inventory, December 31, 2018 …..
141,750
Cost of goods sold ………………………………………………
1,852,445
Gross profit from sales ………………………………………….
3,090,180
Operating expenses
Selling expenses
Advertising expense …………………………………………..
20,250
Depreciation expense—Selling equipment ………….
10,125
Rent expense—Selling space …………………………..
27,000
Sales salaries expense ……………………………………….
Total selling expenses ……………………………………….
General and administrative expenses
Depreciation expense—Office equipment ……………
Office salaries expense ………………………………………
70,875
Total general and administrative expenses …………
Total operating expenses …………………………………….
2,634,565
Income taxes expense ……………………………………………
Problem 14-3B (Concluded)
Part 3
Raw
Materials
Finished
Goods
Cost of raw materials used …………………………..………….
$864,320
Cost of goods sold ………………………………………………….
$1,852,445
Beginning inventory ………………………………………………..
$ 40,375
$ 177,200
Ending inventory……………………………………………………..
70,430
141,750
Total beginning plus ending inventory ……………………..
$110,805
$ 318,950
Average inventory (Total / 2) ……………………………………
$ 55,403
$ 159,475
Discussion: The inventory turnover ratio for the raw materials inventory is
higher than the turnover ratio for finished goods. One reason for the
difference could be that source of supply for raw materials is relatively
dependable, so that the management believes it is not necessary to carry a
larger inventory to sustain operations through periods when the supply
might be interrupted.
Problem 14-4B (40 minutes)
Part 1
Unit and dollar amounts of raw materials inventory in blades
Units
Cost per
unit
Total cost
Beginning inventory 2,500 $20 $50,000
Purchases during the year 45,000 20 900,000
Inventory available for production 47,500 20 950,000
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.
Problem 14-5B (40 minutes)
Part 1
MERCHANDISING BUSINESS
TEEMART
Cost of Goods Sold For The Year
Cost of goods sold
Merchandise inventory, beginning ………………………………………..
$100,000
Merchandise purchases ……………………………………………………….
250,000
Goods available for sale ……………………………………………………….
Less merchandise inventory, ending …………………………………….
150,000
Cost of goods sold ……………………………………………………………….
MANUFACTURING BUSINESS
AIM LABS
Cost of Goods Sold For The Year
Cost of goods sold
Finished goods inventory, beginning …………………………………….
$300,000
Cost of goods manufactured …………………………………………………
586,000
Goods available for sale ……………………………………………………….
Cost of goods sold ……………………………………………………………….
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.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 14
SERIAL PROBLEM — SP 14
Serial Problem, Business Solutions (50 minutes)
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
5. Wages of desk assembler …………………..
X
X
6. Electricity for workshop ……………………..
X
X
X
X
2.
Business Solutions
Schedule of Cost of Goods Manufactured
For Month Ended January 31, 2020
Direct materials ………………………………………………………………………….
$2,200
Direct labor ……………………………………………………………………………….
900
Factory overhead costs ……………………………………………………….
490
Add work in process, December 31, 2019 …………………………..
0
Total cost of work in process ………………………………………………………
Less work in process, January 31, 2020 ………………………………………
540
3.
Business Solutions
Partial Income Statement
For Month Ended January 31, 2020
Cost of goods sold
Finished goods inventory, December 31, 2019 ………………..
$ 0
Cost of goods manufactured ………………………………………….
3,050
Goods available for sale …………………………..…………………….
Company Analysis — AA 14-1
1. From its 2017 10–K report, Apple reports warranty expense (“accruals
for product warranty”) of $4,454 for 2017. (Amount in millions of U.S.
dollars.)
2. For 2017 Apple reports warranty payments (“cost of warranty claims”) of
$4,322 (in millions).
Comparative Analysis — AA 14-2
($ in millions)
1. For Apple, Research and Development Expenses = $11,581 = 5.05%
Sales $229,234
Global Analysis — AA 14-3
1. From its 2017 annual report, Samsung reports a warranty expense
(“charged to the statement of profit or loss’’) of ₩2,032,311 and warranty
payments of ₩1,920,926. (Amounts in millions of Korean won.)
2. From its 2017 10–K report, Apple reports warranty expense (“accruals
for product warranty”) of $4,454 and warranty payments (“cost of warranty
claims”) of $4,322. (Amounts in millions of U.S. dollars.)
1.
Ethics Challenge — BTN 14-1
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
can rely on the rules of ethical behavior by the managerial accounting
Communicating in Practice — BTN 14-2
Instructor note: The solution to this project depends on the database and career fields reviewed.
The objective of this Communicating in Practice project is to make
students aware of the earnings potential of different professions—
particularly, the often higher salaries of accounting professionals with
several years of experience. It also directs them to the school’s career
Taking It to the Net — BTN 14-3
1. Standards of Ethical Conduct for Management Accountants are posted
at the Web site: http://www.IMAnet.org.
These standards (in abbreviated form) are:
Competence – maintain an appropriate level of professional
competence.
2. The four overarching principles are: Honesty, Fairness, Objectivity, and
Responsibility.
3. The IMA suggests first trying to resolve ethical conflicts by applying the
policies of your organization. If this is unsuccessful, contact your
immediate supervisor (unless he or she is involved in the ethical
conflict). Continue presenting the issue to the next supervisory level
until the conflict is resolved. Communicating information to authorities
Teamwork in Action — BTN 14–4
Part 1
a. Materials used
= Beg. Materials
+ Materials purchased
– End. materials
= $177,500
+ $872,500
– $168,125
= $881,875
b. Factory overhead
= Depreciation on factory equipment + factory supervision + factory supplies used +
factory utilities + Indirect labor + Miscellaneous production costs + Rent on factory
building + Maintenance on factory equipment
= $32,500 + $122,500 + $15,750 + $36,250 + $60,000 + $8,500 + $79,750 + $27,875
= $383,125
c. Total manufacturing costs
= Materials used (from a) + Direct labor + Factory overhead (from b)
= $881,875 + $650,750 + $383,125
= $1,915,750
Part 2
Requires that the team check answer to part (1e) with instructor before
proceeding to part (3).
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 14
Teamwork in Action (Continued)
Part 3
a. Net sales
= Sales – Sales discounts
= $3,275,000 – $57,500
= $3,217,500
d. Total operating expenses
= Advertising expense + Depreciation expense on office equipment +
Depreciation expense on selling equipment + Office salaries expense
+ Rent expense on office space + Rent expense on selling space +
Sales salaries expense
= $19,125 + $8,750 + $10,000 + $100,875 + $21,125 + $25,750 + $286,250
= $471,875
Entrepreneurial Decision — BTN 14-5
1. Manufacturing costs for MoringaConnect include (a) direct materials
such as seeds, fertilizer, and water (b) direct labor harvest moringa
leaves, seeds, and oils; direct labor to process leaves into food power
and oil into skin moisturizers; and (c) factory overhead such as
processing center building insurance, depreciation on machines in
harvesting and processing, and utilities.
2. Four goals of a total quality management (TQM) process include
reduced waste, better inventory control, fewer defects, and continuous
improvement. MoringaConnect can use TQM to ensure its key raw
Hitting the Road — BTN 14-6
Instructor note: Student responses will vary depending on the restaurant chosen.
The general framework of a good response includes:
1. The usual activities are
• serving customer at counter
• serving customer at drive–up
• preparing food
• taking orders
• clean–up
• miscellaneous “others”
2. Costs associated with each activity include
• Direct and indirect materials – such as meat, bread, pickles, and
other direct and indirect material costs.
3. Answers will vary because classification of fixed or variable depends
on the costs identified in part 2.