Brief
Exercises Topic Skills
B. Ex. 16.1 Product vs. period costs Analysis, communication
B. Ex. 16.2 Direct material used Analysis
B. Ex. 16.3 Cost of goods sold Analysis
B. Ex. 16.4 Materials inventory Analysis
B. Ex. 16.5 Direct labor journal entries Analysis
B. Ex. 16.6 Manufacturing overhead assigned Analysis
B. Ex. 16.7 Inventory balances Analysis
B. Ex. 16.8 Work in process balances Analysis
B. Ex. 16.9 Prime vs. conversion costs Analysis
B. Ex. 16.10 Partial balance sheet 16-3 Analysis
Exercises Topic Skills
16.1 Accounting terminology Analysis
16.2 Basic types of manufacturing costs Analysis
16.3 Product and period costs Analysis
16.4
Flow of costs through manufacturing
accounts
Analysis
16.5
Schedule of cost of finished goods
manufactured
Analysis
16.6
Flow of costs through manufacturing
accounts
16-3, 16-4, 16-
5
Analysis
16.7 Manipulating accounting figures
Analysis, communication,
judgment
16.8 Design of management accounting systems Analysis, judgment
16.9
Preparing an income statement using the cost
of finished goods manufactured
Analysis
16.10
Preparing an income statement using the cost
of finished goods manufactured
Analysis
16.11 Real World: General Electric Company 16-1 Analysis, judgment
Management accounting system design
16.12 Costs at Hobart Industries
16-3, 16-4, 16-
6
Analysis
16.13
Real World: Classifying costs at misc.
companies
Analysis
16-1
16-1
16-4, 16-6
16-4, 16-6
16-2, 16-3, 16-
5
16-4
16-3, 16-5
16-1–16-5
16-4
16-6
16-2
16-4
16-3, 16-4, 16-
5
16-4
16-2, 16-4
16-4
16-3, 16-4
Learning
Objectives
16-4, 16-5
CHAPTER 16
MANAGEMENT ACCOUNTING: A BUSINESS PARTNER
Learning
Objectives
OVERVIEW OF BRIEF EXERCISES, EXERCISES, PROBLEMS, AND CRITICAL
THINKING CASES
16-3
Exercises Topic Skills
16.14 Real World: Coca-Cola Company 16-2, 16-5 Analysis, judgment
Manufacturing costs at Coca-Cola
16.15 Real World: Home Depot 16-3 Analysis, research
Home Depot product vs. period costs
Sets A, B Skills
16.1 A,B An introduction to product costs 16-3, 16-4 Analysis, communication
16.2 A,B An introduction to product costs
Analysis
16.3 A,B
The flow of manufacturing costs through
ledger accounts
16-4 Analysis
16.4 A,B
The flow of manufacturing costs through
perpetual inventory records
16-4 Analysis
16.5 A,B
The flow of manufacturing costs: A
comprehensive problem
Analysis, communication
16.6 A,B
Determining and reporting product cost
information
16-4, 16-6 Analysis, communication
16.7 A,B
Determining unit costs using the cost of
finished goods manufactured
16-4, 16-6 Analysis
16.8 A,B Measuring unit costs
Analysis, communication,
judgment
16.1
Effects on income statement of errors in
handling manufacturing costs
Analysis, communication,
judgment
16.2 The Meadowbrooke miracle
Analysis, communication,
judgment
16.3 Real World: Pfizer, Inc. 16-4, 16-6 Analysis, research,
(Internet)
technology
16.4 Real World: Coca-Cola Company 16-1, 16-3 Analysis, research,
Code of conduct at Coca-Cola
communication
(Ethics, fraud and corporate governance)
Critical Thinking Cases
Learning
Objectives
Problems
Topic
DESCRIPTIONS OF PROBLEMS AND CRITICAL THINKING CASES
Problems (Sets A and B)
16.1 A,B Aqua-Marine/Pinning, Inc. 20 Easy
A short introduction to the nature of product costs. In addition to
computing manufacturing costs, inventories, and the cost of good
sold, students are asked to explain how and when product costs are
deducted from revenue.
16.2 A,B
Road Warrior Corporation/River Queen Corporation 15 Easy
A short problem illustrating the flow of product costs through the
financial statements of a manufacturing company.
16.3 A,B Superior Locks, Inc./ISP, Inc. 20 Easy
Presented with an illustration of T accounts for a manufacturing
company, students are asked to identify important cost flows and
make computations illustrating key relationships. An excellent first
si
16.4 A,B Double Bar Corporation/Payback Corporation 20 Easy
A short problem that effectively acquaints students with the flow of
manufacturing costs through perpetual inventory accounts.
16.5 A,B Anditon Manufacturing/Valleyview Manufacturing 35 Medium
A short but comprehensive problem on the flow of manufacturing
costs through perpetual inventory records. Also requires
preparation of a schedule of the cost of finished goods
16.6 A,B Kitchen Gadget Co./Columbus Toy Co. 35 Strong
Prepare a schedule of the cost of finished goods manufactured,
determine the cost of goods sold and ending inventory, and explain
the “flow” of product costs.
16.7 A,B Idaho Paper Co./Cedar Company 25 Medium
Prepare a schedule of the cost of finished goods manufactured and
determine the manufacturing cost per unit. Use the unit cost
information to determine the ending inventory of finished goods
and cost of goods sold on a FIFO basis.
16.8 A,B
Raymond Engineering Co./Jackson Engineering Co. 40 Strong
Owner of a company in its first year of operations confuses
manufacturing costs with period costs, which leads him/her to think
that the business is failing. Student is asked to assign costs to
inventories, determine the unit cost of production, prepare a revised
income statement, and explain the shortcomings in the owner’s
original analysis.
Below are brief descriptions of each problem, case, and the first Internet assignment. These
descriptions are accompanied by the estimated time (in minutes) required for completion and by
a difficulty rating. The time estimates assume use of the partially filled-in working papers.
Critical Thinking Cases
16.1
West Texas Guitar Company 40 Strong
Student is presented with a poorly prepared income statement in
which inventories are ignored and all manufacturing costs and
operating expenses are included in the cost of goods sold.
Student is to identify the shortcomings in this income statement
and prepare a schedule of the cost of finished goods
manufactured and a corrected income statement.
16.2
Prescott Manufacturing 40 Strong
In a presentation to the board of directors, a plant manager
attributes the decline in the cost of finished goods manufactured
to increased efficiency. Students are asked to make several unit
cost computations and then to evaluate the manager’s claims.
Pfizer, Inc. 15 Easy
16.3
Internet
The student is asked to examine the notes to the financial
statements and describe the categories of inventories shown.
Information from the financial statements is then used to
calculate the cost of goods manufactured.
16.4
Code of Conduct at Coca-Cola 45 Medium
Ethics, Fraud, and Corporate Governance
Students research how the code of conduct at Coca-Cola helps
employees report ethics, fraud, or governance violations.
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1. a.
Managerial accounting information is intended for use by managers of the business
b.
Managerial accounting information is intended to assist managers in planning and
2.
3.
4.
6.
7.
8.
9.
Benchmark studies show comparisons of companies within the same industry. They are
The Direct Labor account is debited for the cost of the direct labor payroll at each payroll date
and is credited as direct labor costs are assigned to products being manufactured. As
Three inventory control accounts that might be used by a manufacturing firm are materials
The three principles guiding the design of management accounting systems are: 1) to help
Since management accounting information is developed for use primarily by a company’s
Employees are made aware of their decision-making authority through various means such as
job descriptions, verbal instructions from supervisors, and management accounting system
The Materials Inventory account is debited for the cost of purchasing direct materials and
credited for the cost of materials used in the production process. As it is not possible to use
10.
11.
12.
13.
14.
(1)
The starting point is the beginning inventory of work in process, representing
15. a.
Management accountants need per-unit manufacturing information to assist managers in
The Work in Process Inventory account is debited for the costs of (1) direct materials used, (2)
direct labor costs assigned to production, and (3) manufacturing overhead costs assigned to
The Finished Goods Inventory account is debited for the cost of finished goods manufactured
The computation of the cost of finished goods manufactured in a schedule of the cost of finished
goods manufactured involves three steps:
No. Direct materials are those raw materials and parts that can be traced directly and
Five of the six accounts often have balances that appear in financial statements: the three
inventory accounts (Materials, Work in Process, and Finished Goods), the Direct Labor account,
and the Cost of Goods Sold account. Over the year, all overhead costs should be assigned to
production. Therefore, the Manufacturing Overhead account has a zero balance at year-end and
SOLUTIONS TO BRIEF EXERCISES
B. Ex. 16.1
B. Ex. 16.4
Balance, 1/1 $ 320,000
Purchases of
Balance, 12/31 $ 270,000
B. Ex. 16.6
Indirect labor payroll 370,000
Overhead costs
assigned to production
548,000
Indirect material costs 15,000
Direct Materials Inventory
CF Manufacturing Co. — Manufacturing Overhead
Coronado Boat Yard should not recognize any of the manufacturing costs on
B. Ex. 16.6
B. Ex. 16.8
Beginning Bal. 4/1 16,200$
Transferred to
Finished Goods
523,500$
Accounts Receivable ……………………………………………………..
B. Ex. 16.10
Current assets:
$540,000
Only product costs are debited to the Manufacturing Overhead account
Eskola Manufacturing
Work in Process Inventory
Partial Balance Sheet
At December 31
Cash and Cash Equivalents …………………………………………….
SOLUTIONS TO EXERCISES
Ex. 16.2
a.
g.
Manufacturing overhead
Direct materials
Direct product cost
Manufacturing overhead
Manufacturing overhead
Manufacturing overhead
Direct labor
Period cost
Period cost
Period cost
Period cost
Ex. 16.4 $ 35,000
Direct materials
Manufacturing costs applied to production:
Work in process inventory, beginning of the year ………………………..
a.
g.
Work in Process Inventory
Management accounting
Manufacturing overhead
None (These are prime costs.)
None (The statement describes direct manufacturing costs.)
Cost of finished goods manufactured
Period costs
Ex. 16.5 a.
$ 12,000
Manufacturing costs assigned to production:
Work in process inventory, Jan. 1 ………………………………………..
Direct materials used …………………………………………………
Direct labor used …………………………………………………
Less: Finished goods transferred out ………………………………….
Cost of finished goods transferred in ………………………………………….
Less: Cost of goods sold …………………………………………………………….
Manufacturing overhead assigned …………………………………….
Supervisor salaries ………………………………………………………………
Indirect labor costs ……………………………………………………………
Depreciation ……………………………………………………………………….
Less: Manufacturing overhead assigned …………………………………………
Factory utilities ……………………………………………………………..
Factory insurance ……………………………………………………………
Property taxes on factory ………………………………………………….
Ex. 16.6 a. 89,200$
335,750
(326,000)
b. $ 0
13,500
Manufacturing overhead, Jan. 1 ……………………………………….
Indirect materials purchased …………………………………………………….
NuTronics, Inc.
Schedule of the Cost of Finished Goods Manufactured
Direct materials inventory, Jan. 1 ………………………………………
Work in process, January 1 ………………………………….
Less: Direct materials used in production …………………………..
For the Year Ended December 31
Direct materials purchased …………………………………….
Cost of finished goods manufactured …………………………………
Ex. 16.6 c.
(continued)
$ 1,550,000
Ex. 16.7
Ex. 16.8
1.
The answer to this question depends upon one’s interpretation of the word
The decision-making authority for incurring costs at the plant level is not
under the complete control of Sheila. Thus, even though Sheila is held
The Bastile Furniture Company’s management accounting system has these
three problems:
Operating income for the month of January:
Revenues ……………………………………………………………………….
$ 208,200
Cost of goods sold ………………………………………………………
Gross profit …………………………………………………………….
Ex. 16.9
a.
Work in process inventory, January 1 60,000$
Add: Manufacturing costs assigned to production:
(1) Computation of direct materials used:
Direct materials, January 1 40,000$
Add: Direct materials purchased 40,000
Less: Direct materials, December 31 10,000
Direct materials put into production 70,000$
b.
Sales 250,000$
(1) The company’s cost of goods sold figure is based
on the following flow of costs through production
to finished goods:
Finished goods inventory, January 1 42,000$
Add: Cost of finished goods manufactured 140,000
Income Statement
For the Year Ended December 31
ANTHONY COMPANY
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31
ANTHONY COMPANY
Ex. 16.10
a.
Work in process inventory, January 1 79,000$
Add: Manufacturing costs assigned to production:
Direct materials used (1)125,000$
Direct labor 22,000
(1) Computation of direct materials used:
Direct materials, January 1 60,000$
Add: Direct materials purchased 135,000
Direct materials available 195,000$
Less: Direct materials, December 31 70,000
Direct materials put into production 125,000$
b.
Sales 280,000$
Less: Cost of goods sold (1)209,000
Gross profit on sales 71,000$
(1) The company’s cost of goods sold figure is based
on the following flow of costs through production
to finished goods:
Finished goods inventory, January 1 21,000$
Cost of goods available for sale 225,000$
Income Statement
For the Year Ended December 31
RANDOLPH COMPANY
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31
RANDOLPH COMPANY
Total costs in process 245,000$
Ex. 16.11
Ex. 16.15
General Electric’s actions reflect the three design principles of management
Cost of Sales includes the actual cost of merchandise sold and services performed,
the cost of transportation of merchandise from vendors to the Company’s stores,
locations or customers, shipping and handling costs from the Company’s stores,
SOLUTIONS TO PROBLEMS SET A
20 Minutes, Easy
PROBLEM 16.1A
AQUA-MARINE
a. Computations of amounts:
(1) Average per-unit manufacturing cost:
Cost of finished goods manufactured 728,000$
Number of completed units manufactured 112
Average cost per unit ($728,000 ÷ 112 units) 6,500$
Ending finished goods inventory:
Average per-unit manufacturing cost [part (1) ]6,500$
Number of finished goods in inventory
(112 manufactured, less 100 sold) 12
Ending inventory of finished goods
(12 units × $6,500 per unit) 78,000$
(3) Cost of goods sold:
Average per-unit manufacturing cost [part (1) ]6,500$
Alternative computation:
(2) Ending materials inventory:
Ending work in process inventory:
Manufacturing costs charged to work in process:
Direct materials used 216,000$
Direct labor assigned to production 200,000
PROBLEM 16.1A
AQUA-MARINE (concluded)
b.
775,000$
The disposition of the $775,000 in manufacturing costs “incurred” during the year is
summarized below:
Comments on deducting manufacturing costs from revenue:
Total manufacturing costs “incurred” during the year
Less: Amounts representing inventory at year-end:
15 Minutes, Easy
PROBLEM 16.2A
ROAD WARRIOR CORPORATION
a. Total manufacturing costs assigned to work in process:
Direct materials used
750,000$
Direct labor applied to production 800,000
b. Cost of finished goods manufactured:
Cost per completed motor home
55,000$
Number of motor homes completed during the year 45
Cost of finished goods manufactured (45 units × $55,000 per unit) 2,475,000$
55,000$
Number of completed motor homes sold 43
Cost of goods sold (43 units × $55,000 per unit) 2,365,000$
Gross profit on sales 2,150,000$
e. (1) Ending inventory of work in process:
Total manufacturing costs assigned to work in process (a) 2,750,000$
Less: Cost of finished goods manufactured (b) 2,475,000
Ending inventory of work in process 275,000$
(2) Ending inventory of finished goods:
Less: Cost of goods sold (c) 2,365,000
15 Minutes, Easy
PROBLEM 16.3A
SUPERIOR LOCKS, INC.
a. Purchases of direct materials 269,000$
b. Cost of direct materials used:
Materials inventory, beginning of year 13,000$
Add: Purchases of direct materials 269,000
e. Total manufacturing costs:
Direct materials used (part b)265,000$
Direct labor costs 134,000
Manufacturing overhead 214,400
Total manufacturing costs 613,400$
f. Cost of finished goods manufactured 614,400$
g. Ending inventory of work in process:
Work in process inventory, beginning of year 19,000$
Cost of all goods in process during the year 632,400$
Work in process inventory, end of year 18,000$
h. Cost of goods sold:
Beginning inventory of finished goods 46,000$
Add: Cost of finished goods manufactured 614,400
Cost of goods available for sale 660,400$
Less: Ending inventory of finished goods 53,400
Cost of goods sold 607,000$
i. Total inventory at year-end:
Work in process (part g)18,000
Finished goods 53,400
Cost of materials available for use 282,000$
Less: Materials inventory, end of year 17,000
Cost of direct materials used 265,000$
20 Minutes, Easy
PROBLEM 16.4A
DOUBLE BAR CORPORATION
a. Purchases of direct materials 355,000$
b. Direct materials used:
Materials inventory, beginning of year 16,000$
Add: Purchases of direct materials 355,000
Cost of direct materials available for use 371,000$
Less: Materials inventory, end of year 13,000
Cost of direct materials used 358,000$
f. Cost of finished goods manufactured:
Work in process inventory, beginning of year 21,000$
Add: Total manufacturing costs (part e)958,000
Cost of all goods in process during the year 979,000$
Less: Work in process inventory, end of year 25,000
Cost of finished goods manufactured 954,000$
g. Cost of goods sold:
Beginning inventory of finished goods 106,000$
Add: Cost of finished goods manufactured (part f)954,000
Cost of goods available for sale 1,060,000$
Less: Ending inventory of finished goods 118,000
Cost of goods sold 942,000$
h. Total inventory at year-end:
Finished goods inventory 118,000
Total manufacturing costs charged to work in process 958,000$
35 Minutes, Medium
PROBLEM 16.5A
ANDITON MANUFACTURING
a. (1) Direct materials purchased 2,410,000$
(2) Direct materials used:
Materials inventory, beginning of year
222,000$
Add: Purchases of direct materials 2,410,000
(5) Total manufacturing costs:
Direct materials used [part a (2) ]2,506,000$
Direct labor cost 992,000
Manufacturing overhead 893,600
Total manufacturing costs 4,391,600$
(6) Cost of finished goods manufactured:
Work in process inventory, beginning of year
75,000$
Add: Total manufacturing costs [part a (5) ]4,391,600
Cost of all goods in process during the year 4,466,600$
Less: Work in process inventory, end of year 109,000
Cost of finished goods manufactured 4,357,600$
(7) Cost of goods sold:
238,000$
Add: Cost of finished goods manufactured [part a (6) ]4,357,600
Cost of goods available for sale 4,595,600$
Less: Ending inventory of finished goods 325,000
Cost of goods sold 4,270,600$
(8) Total inventory:
Materials inventory
126,000$
Work in process inventory 109,000
Finished goods inventory 325,000
Total inventory 560,000$
Cost of direct materials available for use 2,632,000$
Less: Materials inventory, end of year 126,000
Cost of direct materials used 2,506,000$