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CHAPTER 2 Basic Managerial Accounting Concepts
E 2-42 (Concluded)
So, COGM = Direct Materials Used in Production + Direct Labor Used in Production +
2-16
CHAPTER 2 Basic Managerial Accounting Concepts
P 2-43
1. Direct Direct Manufact.
Materials Labor Overhead
Hamburger meat…………………………
…
$4,500
Buns, lettuce, pickles, and onions……
…
800
Frozen potato strips……………………
…
1,250
Wrappers, bags, and condiment
Explanation of Classification
Direct materials include all the food items that go into a burger bag, as well as the
condiment packages and the wrappers and bags themselves. These materials go
of cost and convenience.
Direct labor consists of the part-time employees who cook food and fill orders.
Manufacturing overhead consists of all indirect costs associated with the production
Selling and
Administrative Cost
PROBLEMS
CHAPTER 2 Basic Managerial Accounting Concepts
P 2-43 (Continued)
2.
Sales ($3.50 × 10,000)…………………………………………………
…
$35,000
Less cost of goods sold:
3. Elena’s simplifying assumptions were:
(1) all part-time employees are production workers,
These make it easy to classify 100% of each expense as product cost or selling
and administrative cost. The result is that she does not have to perform studies
of the time spent by each employee on producing versus selling burger bags. In
Pop’s Drive-Thru Burger Heaven
Income Statement
For the Month of December
CHAPTER 2 Basic Managerial Accounting Concepts
P 2-44
1. Cost per Page for Black Ink = $25.50 = $0.03
850 pages
3. Cost per Page for Color Ink = $31 = $0.10
310 pages
Number of Black Ink Pages for Natalie = 1,000 × 0.80 = 800
× 200 pages] = $49
2. Direct materials used…………………………………………………………
…
$ 84,200
Direct labor……………………………………………………………………
…
43,500
3. Cost of goods manufactured………………………………………………
…
$224,950
2-19
CHAPTER 2 Basic Managerial Accounting Concepts
P 2-46
1. Direct materials……………………………
…
$18
2.
Sales revenue ($60 × 200,000)…………………………………………
…
$12,000,000
Cost of goods sold………………………………………………………
…
9,200,000
3. The 10,000 tents in beginning finished goods inventory have a cost of $40, and
that is lower than the year’s unit product cost of $46. The FIFO assumption says
Laworld Inc.
Income Statement
For Last Year
2-20
CHAPTER 2 Basic Managerial Accounting Concepts
P 2-46 (Continued)
Sales revenue ($60 × 200,000)…………………………………………
…
$12,000,000
Cost of goods sold………………………………………………………
…
9,140,000
P 2-47
1. Direct Materials = $3,475 + $15,000 – $9,500 = $8,975
Direct materials used………………………………………
…
$ 8,975
Direct labor………………………………………………
…
10,500
Manufacturing overhead:
2.
Cost of goods manufactured……………………………………………
…
$24,725
Revised Income Statement
For Last Year
Laworld Inc.
Statement of Cost of Goods Sold
For the Month of May
Hayward Company
Statement of Cost of Goods Manufactured
For the Month of May
Hayward Company
CHAPTER 2 Basic Managerial Accounting Concepts
P 2-48
1. c. These costs include direct materials, direct labor, and manufacturing
overhead. The total of these three types of costs equals product cost.
4. j. Jamie is working at company headquarters, and her salary is part of
administrative cost.
5. i. All factory costs other than direct materials and direct labor are, by definition,
overhead.
CHAPTER 2 Basic Managerial Accounting Concepts
P 2-49
1. Before COGM can be calculated, Direct Materials Used in Production must first be
calculated as:
Direct Materials Used in Production = Beginning Direct Materials Inventory +
Direct Materials Purchases – Ending Direct Materials Inventory
2. COGS = Beginning Finished Goods Inventory + COGM – Ending Finished Goods
Inventory
= $300,000 + $910,000 – $280,000
= $930,000
CHAPTER 2 Basic Managerial Accounting Concepts
P 2-49 (Continued)
3.
Sales (2,100 × 700)…………………………………………………………
…
$1,470,000
4. The dominant cost is direct labor cost of $800,000. Direct labor is the dominant
P 2-50
1.
Direct materials*…………………………………………… $300,000
Direct labor…………………………………………………
…
200,000
Manufacturing overhead:
Income Statement
Berry Company
Statement of Cost of Goods Manufactured
For Last Year
For Last Year
W. W. Phillips Company
2-24
CHAPTER 2 Basic Managerial Accounting Concepts
P 2-50 (Continued)
2. Average Cost of One Unit of Product = $652,000 = $163
4,000
3.
Sales ($400 × 3,800*)……………………………….…………
…
$1,520,000
Cost of goods sold**…………………………………………
…
617,900
P 2-51
1. The Internet payment of $40 is an expense that would appear on the income
statement. This is because the Internet services are used up each month
—
Luisa
cannot “save” any unused Internet time for the next month.
W. W. Phillips Company
Income Statement
For Last Year
2-25
CHAPTER 2 Basic Managerial Accounting Concepts
P 2-52
1. Direct materials:
Magazine (5,000 × $0.40)…………………………………… $2,000
Brochure (10,000 × $0.08)…………………………………
…
800 $2,800
Direct labor:
2. Direct materials…………………………………………………
…
$2,800
Direct labor………………………………………………………
…
3,500
Total prime costs……………………………………………
…
$6,300
3. Total monthly conversion cost:
Direct labor…………………………………………………… $3,500
Manufacturing overhead…………………………………… 3,190
Total………………………………………………………
…
$6,690
Magazine:
2-26
CHAPTER 2 Basic Managerial Accounting Concepts
P 2-52 (Continued)
Brochures:
Direct labor………………………………………………
…
$1,000
Manufacturing overhead:
Power ($1 × 100)………………………………………
…
$100
4. Sales [(5,000 × $1.80) + (10,000 × $0.45)]………………… $13,500
Less cost of goods sold……………………………………
…
9,490
Gross margin…………………………………………………
…
$ 4,010
Less operating expenses:
CHAPTER 2 Basic Managerial Accounting Concepts
P 2-53
1. The costs of the tent sales are accounted for as selling expense. The tent
sales are designed to sell outdated or remanufactured products. They are
2. Revenue…………………………………………………………………
…
$ 20,000
Cost of goods sold……………………………………………………
…
(7,000)
Tent sale expense……………………………………………………
…
(14,300)
2-28
CHAPTER 2 Basic Managerial Accounting Concepts
Case 2-54
1.
(DL) Machine operators Advertising
2. Traceable costs using equipment hours:
Machine operators…………………………
…
$ 218,000
Other direct labor…………………………… 265,700
Pipe……………………………………………
…
1,401,340
CASES
Production Selling
Administrativ
e
Utilities
CHAPTER 2 Basic Managerial Accounting Concepts
Case 2-55
1. Leroy should politely and firmly decline the offer. The offer includes an implicit
request to use confidential information to help Jean win the bid. Use of such
information for personal advantage is wrong. Leroy has a professional and
2. If Leroy agrees to review the bid, he will likely use his knowledge of his current
employer’s position to help Jean win the bid. In fact, agreement to help probably
would reflect a desire for the bonus and new job with the associated salary
increase. Helping would likely ensure that Jean would win the bid. Leroy was
