Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 18
1045
Chapter 18
Managerial Accounting Concepts and
Principles
QUESTIONS
1. The managerial accountant plays an important role in preparing the information
necessary for effective planning and control decisions. One example is the budget,
2.
Financial Accounting
Managerial Accounting
(a) Users and decision
makers
Investors, creditors, and
other users external to the
organization
Managers, employees, and
decision makers internal to
the organization
3. A customer orientation has led companies to adopt the principles of the lean
business model in response to consumer demands. The essence of customer
4. Direct labor refers to the efforts of employees who physically convert materials to
finished product. Indirect labor refers to the efforts of factory employees who do not
5. Factory overhead is limited to indirect costs that are incurred in the production
process. That is, it consists of activities that support the production process, such
6. Direct materials are raw materials that physically become part of the product and
can be clearly traced to specific units or batches of product. Indirect materials are
8. Direct costs of iPhones include: costs of materials such as smartphone cameras,
memory chips, screens, and processors, as well as the labor of workers who
9. The production manager should likely not be evaluated on the basis of operating
10. Management usually must be able to predict financial performance to be successful.
11. Product costs are capitalized because they represent a future value (an asset) to the
12. A manufacturing business produces a product, whereas in a merchandising or
service business this is not the case. In making a product, the manufacturing
13. To run a successful business, management must make predictions and estimates
14. A manufacturing firm converts raw materials into finished products. A
manufacturing company would report three types of inventories on its balance
sheet: raw materials, work in process, and finished goods. The finished goods are
15. Manufacturers’ balance sheets usually include small tools, factory buildings, factory
16. Manufacturing firms have inventories at various states of completion. Manufacturing
a product requires raw materials, which are converted to finished goods.
17. Manufacturing activities of a company are described in the Schedule of Cost of
19. Examples of factory overhead costs include: indirect materials, indirect labor,
depreciation of the factory equipment and plant, amortization of patents, the cost of
Work in process ……………………………………………………….
Raw materials and supplies ………………………………………
902
20.
Components of Schedule of COGM
Direct material ……………………………………………………….
21.
Google
Schedule of Cost of Goods Manufactured
22. The income statement describes the revenues and expenses for the year. Included
in the calculation of the cost of goods sold is a line item identified as the cost of
23. Raw materials inventory turnover and days’ sales in raw materials inventory can be
used to assess raw materials inventory management. Raw materials inventory
24. The triple bottom line reports on an organization’s financial, social, and
25.
Inventory Components ($ millions)
3M Co. (December 31, 2014)
Finished goods ……………………………………………………….
$1,723
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 18
1049
QUICK STUDIES
Quick Study 18-1 (5 minutes)
1. Its primary users are company managers.
Managerial
Quick Study 18-2 (5 minutes)
1. At her normal usage, your sister’s total cost with Plan A is $80 (fixed).
Quick Study 18-4 (5 minutes)
Quick Study 18-5 (10 minutes)
Financial
3. Its primary focus is on the organization as a whole.
Financial
4. Its principles and practices are very flexible.
Managerial
5. It focuses mainly on past results.
Financial
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Quick Study 18-6 (10 minutes)
1. Product cost
Quick Study 18-7 (5 minutes)
Ending work in process inventory is computed as:
Direct materials used in production …………………………………………..
$74,300
Direct labor used in production …………………………………………………
225,000
Beg. Inv. 26,500
Work in Process Inventory
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Quick Study 18-8 (5 minutes)
Total manufacturing cost is computed as:
Direct labor used in production …………………………………………………
Factory overhead used in production* ……………………………………….
Quick Study 18-9 (10 minutes)
Cost of goods sold is computed as:
Beginning finished goods inventory ………………………………………….
$ 500
Cost of goods manufactured ……………………………………………………..
Quick Study 18-10 (10 minutes)
Finished goods inventory, December 31, 2016 ……………………..
$ 345,000
Cost of goods available for sale …………………………………………..
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Quick Study 18-11 (15 minutes)
Barton Company
Schedule of Cost of Goods Manufactured
For Year Ended December 31, 2017
Direct materials ………………………………………………………………………….
$190,500
Total manufacturing costs …………………………………………………………
Total cost of work in process ………………………………………………………
Quick Study 18-12 (5 minutes)
Raw materials inventory, beginning ……………………………………
$ 6,000
Plus raw materials purchased …………………………………………….
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Quick Study 18-13 (10 minutes)
1. E
Quick Study 18-14 (5 minutes)
(Amounts in $ millions)
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Quick Study 18-15 (10 minutes)
(in $ millions)
Cost of raw materials used ……………………………………………….
$3,692
Beginning raw materials inventory ……………………………………
Total beginning plus ending raw materials inventory…………
Average raw materials inventory (Total / 2) ……………………….
Quick Study 18–16 (5 minutes)
(Amounts in millions of Swiss francs)
Raw materials inventory, beginning …………………………..……….
3,815
Plus raw materials purchased …………………………………………….
Raw materials available for use ………………………………………….
Beginning raw materials inventory ……………………………………
Quick Study 18–17 (10 minutes)
(in millions of Swiss francs)
Cost of raw materials used ……………………………………………….
14,176
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 18
EXERCISES
Exercise 18-1 (10 minutes)
Primary Information
Source
Managerial
3. Report financial performance to board of directors
Managerial
Managerial
5. Plan the budget for next quarter
Managerial
7. Prepare financial reports according to GAAP
Managerial
6. Measure profitability of an individual store
8. Determine location and size for a new plant
Business Decision
2. Evaluate a purchasing department’s performance
4. Estimate product cost for new line of shoes
Exercise 18-2 (20 minutes)
Product Cost
Variable
or Fixed
Direct
or Indirect
1. Leather cover for soccer balls Variable Direct
2. Annual flat fee paid for office security Fixed Indirect
3. Coolants for machinery Fixed Indirect
4. Wages of assembly workers Variable Direct
5. Lace to hold the leather together Variable Indirect
6. Taxes on factory Fixed Indirect
7. Machinery depreciation (straight-line) Fixed Indirect
Most fixed costs are indirect. Fixed costs normally are resources acquired to
support the production process rather than being traceable to individual
products or batches of product. However, not all indirect costs are fixed.
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Exercise 18-3 (10 minutes)
Exercise 18-4 (20 minutes)
Cost
Variable
Fixed
Direct
Indirect
1. Advertising ……………………………………..
X
X
2. Beverages and snacks …………………….
X
X
5. Fuel and oil used in planes ………………
X
X
6. Flight attendant wages …………………….
9. Customer service salaries ……………….
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Exercise 18-5 (15 minutes)
1. Direct material
Exercise 18-6 (20 minutes)
Direct or Indirect
Product or
Period
Product Cost
Type
Prime or
Conversion
1) Factory utilities Indirect Product Overhead Conversion
Cost
Exercise 18-7 (20 minutes)
Part 1
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Exercise 18-7 (concluded)
Part 2
Company 1
Sunrise Foods
Balance Sheet—Current Assets Section
December 31, 2017
Cash ………………………………………………………………………………………………..
$ 7,000
Accounts receivable …………………………………………………………………………
62,000
Merchandise inventory ……………………………………………………………………..
45,000
Total current assets ………………………………………………………………………….
Company 2
Rayzer Skis Mfg.
Balance Sheet—Current Assets Section
December 31, 2017
Cash ………………………………………………………………………………………………..
$ 5,000
Accounts receivable …………………………………………………………………………
75,000
Raw materials inventory …………………………………………………………………..
42,000
Total current assets ………………………………………………………………………….
Cost of goods available for sale …………………….
Less ending finished goods inventory …………..
17,650
13,300
Cost of goods sold ……………………………………….
$ 91,030
$143,010
Exercise 18-8 (30 minutes)
Garcon
Company
Pepper
Company
1. COST OF GOODS MANUFACTURED
Direct materials
Beginning raw materials inventory ……………..
$ 7,250
$ 9,000
Raw materials purchases …………………………..
33,000
52,000
Raw materials available for use ………………….
Less ending raw materials inventory …………..
7,200
Direct labor …………………………………………………..
Rental cost on factory equipment ……………….
Factory utilities ………………………………………….
Factory supplies used ………………………………..
Indirect labor ……………………………………………..
4,780
1,500
Total manufacturing costs …………………………..
Beginning work in process inventory …………….
14,500
19,950
Total cost of work in process ………………………..
Less ending work in process inventory …………
16,000
Cost of goods manufactured …………………………
$ 96,680
$139,860
2. COST OF GOODS SOLD
Beginning finished goods inventory ……………..
$ 12,000
$ 16,450
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 18
1061
E EExercise 18-9 (30 minutes)
GARCON COMPANY
Income Statement
For Year Ended December 31, 2017
Sales …………………………………………………………………………………
$195,030
PEPPER COMPANY
Income Statement
For Year Ended December 31, 2017
Sales …………………………………………………………………………………
$290,010
Gross profit ………………………………………………………………………
Cost of goods sold (from Ex. 18–8) …………………………………….
Gross profit ………………………………………………………………………
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Exercise 18-9 (continued)
GARCON COMPANY
Partial Balance Sheet
As of December 31, 2017
Cash ………………………………………………………………………………
$20,000
$78,150
PEPPER COMPANY
Partial Balance Sheet
As of December 31, 2017
Cash ………………………………………………………………………………
$15,700
$71,650
Rental cost on factory equipment ……………….
Factory utilities ………………………………………….
Factory supplies used ………………………………..
Indirect labor ……………………………………………..
Total conversion costs ………………………………….
Exercise 18-10 (20 minutes)
Garcon
Company
Pepper
Company
1. PRIME COSTS
Direct materials
Beginning raw materials inventory ……………..
$ 7,250
$ 9,000
Raw materials purchases …………………………..
Raw materials available for use ………………….
Less ending raw materials inventory …………..
2. CONVERSION COSTS
Direct labor …………………………………………………..
Factory overhead
$19,000
$35,000
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Exercise 18–11 (20 minutes)
Merchandising Business
UNIMART
Partial Income Statement
For Year Ended December 31, 2017
Cost of goods sold
Merchandise inventory, December 31, 2016 ……………………….
$275,000
Merchandise purchases …………………………………………………….
Less merchandise inventory, December 31, 2017 ……………….
Beginning Inventory 275,000
Merchandise Inventory