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SOLUTION
CHILI MANUFACTURING COMPANY
Schedule of Cost of Goods Manufactured
Month Ended June 30, 2016
Missing Amounts:
Beginning Raw Materials Inventory:
Raw Materials Available for Use
$ 84,000
Purchases of Raw Materials
(58,000)
Beginning Raw Materials Inventory
$ 26,000
P16-32A, cont.
Total Manufacturing Costs to Account For:
Beginning Work-in-Process Inventory
$ 21,000
Total Manufacturing Costs Incurred During the Month
171,000
Total Manufacturing Costs to Account For
$ 192,000
CHILI MANUFACTURING COMPANY
Income Statement
Month Ended June 30, 2016
Sales Revenue
$ 510,000
Cost of Goods Sold:
Beginning Finished Goods Inventory
$ 112,000
Cost of Goods Manufactured
169,000
P16-32A, cont.
Cost of Goods Manufactured:
[From the Schedule of Cost of Goods Manufactured]
Cost of Goods Available for Sale:
Beginning Finished Goods Inventory
$ 112,000
Cost of Goods Manufactured
169,000
Cost of Goods Available for Sale
$ 281,000
P16-33A Determining flow of costs through a manufacturer’s inventory accounts
Learning Objective 4
3. $18,680,000
West Shoe Company makes loafers. During the most recent year, West incurred total manufacturing
costs of $19,600,000. Of this amount, $2,700,000 was direct materials used and $12,800,000 was direct
labor. Beginning balances for the year were Raw Materials Inventory, $500,000; Work-in-Process In-
ventory, $800,000; and Finished Goods Inventory, $500,000. At the end of the year, balances were Raw
Materials Inventory, $700,000; Work- in-Process Inventory, $1,600,000; and Finished Goods Inventory,
$620,000.
Requirements
Analyze the inventory accounts to determine:
1. Cost of raw materials purchased during the year.
2. Cost of goods manufactured for the year.
3. Cost of goods sold for the year.
SOLUTION
Requirement 1
Cost of raw materials purchased:
Requirement 2
Cost of goods manufactured for the year:
Requirement 3
Cost of goods sold for the year:
Problems (Group B)
P16-34B Applying ethical standards, management accountability
Learning Objective 1
Ava Borzi is the new controller for Halo Software, Inc. which develops and sells education software.
Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how
things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9%
for the first time in the company’s five-year history. Busch explains that financial analysts have again
predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He
suggests that Borzi talk to the assistant controller, who can explain how the previous controller dealt
with such situations. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing $18,000 in invoices until January 1.
b. Record as sales $120,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of the next year’s
sales are included in this year’s sales.
d. Reduce the estimated Bad Debts Expense from 3% of Sales Revenue to 2%, given the company’s
continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. How might these inconsistencies affect the company’s stakeholders?
3. What should Borzi do if Busch insists that she follow all of these suggestions?
SOLUTION
Students’ responses will vary. Illustrative answers follow.
Requirement 1
a. If the goods have been received, postponing recording of the purchases understates liabilities. This is
unethical and inconsistent with the IMA standards even if the suppliers agree to delay billing.
Requirement 2
Management accountability is management’s responsibility to the various stakeholders of the company.
Each group of stakeholders has an interest of some sort in the business. Stakeholders include suppliers,
Requirement 3
The controller should resist attempts to implement a, b, and c and should gather more information about
P16-35B Classifying period costs and product costs
Learning Objective 3
Langley, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while
manufacturing edgers:
Requirements
1. Describe the difference between period costs and product costs.
2. Classify Langley’s costs as period costs or product costs. If the costs are product costs, further classi-
fy them as direct materials, direct labor, or manufacturing overhead.
SOLUTION
Requirement 1
Period costs are operating costs that are expensed in the accounting period in which they are incurred.
Requirement 2
Cost:
Period
Cost
Product Cost
Direct
Materials
Direct
Labor
Manufacturing
Overhead
Handle and shaft of edger
X
Motor of edger
X
P16-36B Calculating cost of goods sold for merchandising and manufacturing companies
Learning Objectives 2, 4, 5
3. Company 2: $216,500
Below are data for two companies:
Requirements
1. Define the three business types: service, merchandising, and manufacturing.
2. Based on the data given for the two companies, determine the business type of each one.
3. Calculate the cost of goods sold for each company.
SOLUTION
Requirement 1
Service companies sell services rather than products. They sell time, skills, and knowledge. Merchan-
Requirement 2
Requirement 3
Company 1:
Beginning Merchandise Inventory
$ 10,800
P16-37B Preparing an income statement and calculating unit cost for a service company
Learning Objectives 2, 5
2. $166.40
The Windshield Doctors repair chips in car windshields. The company incurred the following operating
costs for the month of July 2016:
The Windshield Doctors earned $26,000 in revenues for the month of July by repairing 100 windshields.
All costs shown are considered to be directly related to the repair service.
Requirements
1. Prepare an income statement for the month of July.
2. Compute the cost per unit of repairing one windshield, rounded to the nearest cent.
3. The manager of The Windshield Doctors must keep unit operating cost below $150 per windshield
in order to get his bonus. Did he meet the goal?
SOLUTION
Requirement 1
THE WINDSHIELD DOCTORS
Income Statement
Month Ended July 31, 2016
Revenues:
Requirement 2
Unit cost
=
Total expenses / Total windshields repaired
P16-38B Preparing an income statement and calculating unit cost for a merchandising company
Learning Objectives 2, 5
1. Net income: $13,300
Clyde Synder owns Clyde’s Pets, a small retail shop selling pet supplies. On December 31, 2016, the
accounting records for Clyde’s Pets showed the following:
Requirements
1. Prepare an income statement for Clyde’s Pets for the year ended December 31, 2016.
2. Clyde’s Pets sold 3,200 units. Determine the unit cost of the merchandise sold, rounded to the near-
est cent.
SOLUTION
Requirement 1
CLYDE’S PETS
Income Statement
Year Ended December 31, 2016
Revenues:
Sales Revenue
$ 58,000
Cost of Goods Sold:
Requirement 2
Unit cost
=
Cost of goods sold / Total units sold
P16-39B Preparing a schedule of cost of goods manufactured and an income statement for a man-
ufacturing company
Learning Objectives 2, 4
2. Net income: $43,000
Organic Bones manufactures its own brand of pet chew bones. At the end of December 2016, the ac-
counting records showed the following:
Requirements
1. Prepare a schedule of cost of goods manufactured for Organic Bones for the year ended December
31, 2016.
2. Prepare an income statement for Organic Bones for the year ended December 31, 2016.
3. How does the format of the income statement for Organic Bones differ from the income statement of
a merchandiser?
4. Organic Bones manufactured 17,400 units of its product in 2016. Compute the company’s unit prod-
uct cost for the year, rounded to the nearest cent.
SOLUTION
Requirement 1
ORGANIC BONES
Schedule of Cost of Goods Manufactured
Year Ended December 31, 2016
Beginning Work-in-Process Inventory
$ 0
Direct Materials Used:
