testbank10.com · Web viewMIX-A-LOT MANUFACTURING COMPANYStatement of Cost of Goods ManufacturedFor the Month Ended March 31, 2016Work in process inventory, March 1, 2016$214,200Direct

CHAPTER 16 (FIN MAN); CHAPTER 1 (MAN)MANAGERIAL ACCOUNTING CONCEPTS AND PRINCIPLES

DISCUSSION QUESTIONS

1. Financial accounting and managerial accounting are different in several ways. Financialaccounting information is reported in statements that are useful to persons or groups outside ofa company. These statements objectively report the results of operations for fixed periods oftime and the financial condition of the business under generally accepted accounting principles.Managerial accounting information uses both subjective and objective information to meet thespecific needs of management. This non-GAAP information can be reported periodically or asneeded by management and can be reported for the entire entity or for segments of the organization.This information includes (i) historical data, which provide objective measures of past operations,and (ii) estimated data, which provide subjective estimates about future decisions.

2. a. A line department is directly involved in providing goods and services to customers, while astaff department provides service, assistance, or advice to line departments or other staffdepartments.

b. (1) Sales Department(2) Personnel Department

3. Direct materials cost

4. Prime costs are the combination of direct materials and direct labor costs, while conversioncosts are the combination of direct labor costs and factory overhead costs.

5. Product costs are composed of three elements of manufacturing costs: direct materials cost, directlabor cost, and factory overhead cost. These costs are treated as assets until the product is sold.Period costs consist of selling and administrative expenses that are used in generating revenueduring the current period. They are recognized as expenses on the current period’s income statement.

6. The three inventory accounts for a manufacturing business are as follows:

a. Finished goods inventory consists of completed (or finished) products that have not been sold.

b. Work in process inventory consists of the direct materials, direct labor, and factory overheadcosts for products that have entered the manufacturing process, but are not yet completed.

c. Materials inventory consists of the costs of the direct and indirect materials that have notentered the manufacturing process.

7. Finished goods, work in process, and materials

8. The cost of finished goods and the cost of work in process included the following:

a. Direct materials—the costs of materials that enter directly into the finished product.

b. Direct labor—the wages of factory workers who convert materials into a finished product.

c. Factory overhead—the costs, other than direct materials and direct labor, that are incurred inthe manufacturing process.

9. Cost of goods sold

10. A merchandising business purchases merchandise (products) in a finished state for resale tocustomers. The cost of product sold is called cost of merchandise sold. A manufacturer makesthe product it sells using direct materials, direct labor, and factory overhead. The cost of theproduct sold is generally called cost of goods sold.

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PRACTICE EXERCISES

PE 16-1A (FIN MAN); PE 1–1A (MAN)Controlling (a)Planning (c)Decision making (b)

PE 16–1B (FIN MAN); PE 1–1B (MAN)Planning (a)Directing (c)Controlling (b)

PE 16–2A (FIN MAN); PE 1–2A (MAN)a. DLb. FOc. DMd. FO

PE 16–2B (FIN MAN); PE 1–2B (MAN)a. DM (or FO if the cost is immaterially small)b. DLc. FOd. DM

PE 16–3A (FIN MAN); PE 1–3A (MAN)a. Bb. Cc. Pd. C

PE 16–3B (FIN MAN); PE 1–3B (MAN)a. Pb. Bc. C (or P if significant)d. C


PE 16–4A (FIN MAN); PE 1–4A (MAN)a. Product costb. Product costc. Period costd. Period cost

PE 16–4B (FIN MAN); PE 1–4B (MAN)a. Period costb. Product costc. Product costd. Period cost

PE 16–5A (FIN MAN); PE 1-4B (MAN)a. Work in process inventory, March 1……………………………… $ 87,500

Cost of direct materials used in production…………………… $21,000Direct labor…………………………………………………………… 54,250Factory overhead…………………………………………………… 35,000Total manufacturing costs incurred during March…………… 110,250Total manufacturing costs………………………………………… $197,750Less work in process inventory, March 31……………………… 92,750Cost of goods manufactured……………………………………… $105,000

b. Finished goods inventory, March 1……………………………… $ 36,750Cost of goods manufactured……………………………………… 105,000Cost of finished goods available for sale……………………… $141,750Less finished goods inventory, March 31……………………… 42,000Cost of goods sold…………………………………………………… $ 99,750

PE 16–5B (FIN MAN); PE 1-5B (MAN)a. Work in process inventory, July 1………………………………… $ 32,800

Cost of direct materials used in production…………………… $67,200Direct labor…………………………………………………………… 88,000Factory overhead…………………………………………………… 44,800Total manufacturing costs incurred during July……………… 200,000Total manufacturing costs………………………………………… $232,800Less work in process inventory, July 31………………………… 29,600Cost of goods manufactured……………………………………… $203,200

b. Finished goods inventory, July 1………………………………… $ 37,600Cost of goods manufactured……………………………………… 203,200Cost of finished goods available for sale……………………… $240,800Less finished goods inventory, July 31………………………… 27,200Cost of goods sold…………………………………………………… $213,600


EXERCISES

Ex. 16–1 (FIN MAN); Ex. 1–1 (MAN)a. Factory overhead cost e. Factory overhead costb. Direct materials cost f. Factory overhead costc. Direct materials cost g. Direct materials costd. Direct materials cost h. Direct labor cost

Ex. 16–2 (FIN MAN); Ex. 1–2 (MAN)a. Factory overhead cost f. Direct labor costb. Factory overhead cost g. Factory overhead costc. Factory overhead cost h. Direct materials costd. Direct labor cost i. Direct materials coste. Direct materials cost j. Factory overhead cost

Ex. 16–3 (FIN MAN); Ex. 1–3 (MAN)a, b, d, f, g

Ex. 16–4 (FIN MAN); Ex. 1–4 (MAN)a. Period cost j. Period costb. Product cost k. Product costc. Product cost l. Product costd. Period cost m. Period coste. Period cost n. Period costf. Product cost o. Product costg. Product cost p. Product costh. Period cost q. Product costi. Period cost

Ex. 16–5 (FIN MAN); Ex. 1–5 (MAN)a. period e. work in process inventoryb. improve f. conversionc. costs g. decreasesd. cost object


Ex. 16–6 (FIN MAN); Ex. 1–6 (MAN)a. improving e. strategicb. conversion f. materials inventoryc. period g. electricity used to run assembly lined. indirect

Ex. 16–7 (FIN MAN); Ex. 1–7 (MAN)a. direct g. indirectb. indirect h. indirectc. direct i. indirectd. direct j. directe. indirect k. indirectf. indirect l. indirect

Ex. 16–8 (FIN MAN); Ex. 1–8 (MAN)1. The maintenance salaries and indirect materials should be included as factory

overhead.

2. The factory overhead incorrectly includes the following items: sales salaries,promotional expenses, corporate office insurance and property taxes, and corporateoffice depreciation. These items should not be included as factory overhead. Thecorrected report is as follows:

MARCHING ANTS INC.Manufacturing Costs

For the Quarter Ended June 30, 2016

Cost of direct materials used in production $ 551,300Direct labor 478,100Factory overhead:

Maintenance salaries $ 84,400Indirect materials 56,200Supervisor salaries 517,500Heat, light, and power 140,650Insurance and property taxes—plant 151,900Depreciation—plant and equipment 123,750 1,074,400

Total $2,103,800


Ex. 16–9 (FIN MAN); Ex. 1–9 (MAN)

a.

b. Inventory balances on January 31, 2016:

Materials ($133,200 – $94,080)…………………………………………………… $39,120Work in Process ($94,080 + $180,320 + $211,680 – $425,320)……………… $60,760Finished Goods ($425,320 – $365,000)…………………………………………. $60,320

Ex. 16–10 (FIN MAN); Ex. 1–10 (MAN)FLAT TOP COMPANY

Balance SheetDecember 31, 2016

Current assets:Cash $112,000Accounts receivable 105,000Inventories:

Finished goods $ 40,250Work in process 157,500Materials 87,500 285,250

Supplies 71,300Prepaid insurance 27,500

Total current assets $601,050

VIDEO WAVE MANUFACTURING COMPANYIncome Statement

For the Month Ended January 31, 2016Revenues $652,000Cost of goods sold 365,000Gross profit $287,000Operating expenses:

Selling expenses $86,520Administrative expenses 71,250

Total operating expenses 157,770Net income $129,230


Ex. 16–11 (FIN MAN); Ex. 1–11 (MAN)Materials inventory, June 1, 2016…………………………………………………… $ 279,000Add materials purchased during June……………………………………………... 828,000 Cost of materials available for use………………………………………………… $1,107,000Less materials inventory, June 30, 2016…………………………………………… 252,000

Cost of direct materials used in production…………………………………… $ 855,000

Ex. 16–12 (FIN MAN); Ex. 1–12 (MAN)a. $179,200 ($22,400 + $156,800)b. $145,600 ($179,200 – $33,600)c. $243,600 ($294,000 – $50,400)d. $226,800 ($294,000 – $67,200)e. $9,800 ($68,600 – $58,800)f. $8,400 ($68,600 – $60,200)

Ex. 16–13 (FIN MAN); Ex. 1–13 (MAN)Work in process inventory, January 1, 2016…………………… $ 162,000Add manufacturing costs incurred during January:

Cost of direct materials used in production………………… $390,000Direct labor………………………………………………………… 336,000Factory overhead………………………………………………… 234,000Total manufacturing costs incurred…………………………… 960,000

Total manufacturing costs………………………………………… $1,122,000Less work in process inventory, January 31, 2016…………… 170,400Cost of goods manufactured……………………………………… $ 951,600

Ex. 16–14a. $390,600 ($61,600 + $329,000)b. $317,800 ($390,600 – $72,800)c. $214,200 ($260,400 – $46,200)d. $198,800 ($260,400 – $61,600)e. $55,200 ($540,000 – $484,800)f. $26,400 ($540,000 – $513,600)


Ex. 16–15 (FIN MAN); Ex. 1–15 (MAN)

a.

b. Finished goods inventory, March 1, 2016……………………………………… $ 163,800Cost of goods manufactured……………………………………………………… 1,328,760Cost of finished goods available for sale……………………………………… $1,492,560Less finished goods inventory, March 31, 2016……………………………… 189,000Cost of goods sold………………………………………………………………… $1,303,560

MIX-A-LOT MANUFACTURING COMPANYStatement of Cost of Goods Manufactured

For the Month Ended March 31, 2016

Work in process inventory, March 1, 2016 $ 214,200Direct materials:

Materials inventory, March 1, 2016 $315,000Purchases 604,800Cost of materials available for use $919,800Less materials inventory, March 31, 2016 277,200Cost of direct materials used in

production $642,600Direct labor 567,000Factory overhead:

Indirect labor $ 60,480Machinery depreciation 36,000Heat, light, and power 12,600Supplies 10,080Property taxes 8,820Miscellaneous cost 16,380

Total factory overhead 144,360Total manufacturing costs incurred during March 1,353,960Total manufacturing costs $1,568,160Less work in process inventory, March 31, 2016 239,400Cost of goods manufactured $1,328,760


Ex. 16–16 (FIN MAN); Ex. 1–16 (MAN)a. Finished goods inventory, October 1, 2016…………………… $101,250

Cost of goods manufactured…………………………………… 450,000Cost of finished goods available for sale……………………… $551,250Less finished goods inventory, October 31, 2016…………… 93,800Cost of goods sold………………………………………………… $457,450

b. Sales………………………………………………………………… $911,250Cost of goods sold………………………………………………… 457,450Gross profit………………………………………………………… $453,800

c. Gross profit………………………………………………………… $453,800Operating expenses:

Selling expenses………………………………………………… $144,500Administrative expenses……………………………………… 75,900

Total operating expenses………………………………… 220,400Net income…………………………………………………………… $233,400

Ex. 16–17 (FIN MAN); Ex. 1–17 (MAN)a. Sales………………………………………………………………… $792,000

Less gross profit…………………………………………………… 462,000Cost of goods sold………………………………………………… $330,000

b. Cost of goods manufactured…………………………………… $396,000Less cost of goods sold…………………………………………… 330,000Finished goods inventory………………………………………… $ 66,000

c. Purchased materials……………………………………………… $244,200Less materials inventory………………………………………… 33,000Direct materials cost……………………………………………… $211,200

d. Total manufacturing costs………………………………………… $455,400Less: Direct materials…………………………………………… $211,200

Factory overhead costs (indirect laborand factory depreciation)*…………………………… 198,000 409,200

Direct labor cost…………………………………………………… $ 46,200

* $171,600 + $26,400

e. Total manufacturing costs………………………………………… $455,400Less cost of goods manufactured……………………………… 396,000Work in process inventory……………………………………… $ 59,400


Ex. 16–18(FIN MAN); EX.1-18 (MAN)The Hotel Monaco has excess capacity for this day, so it is willing to acceptadditional customers. To determine whether or not to accept Natalie Mooney’sbid, the Hotel Monaco could use managerial accounting information to determinethe additional cost of servicing the room during and following Natalie’s stay.These costs would include the housekeeping labor cost per room, the cost ofroom supplies (soap, paper, etc.), laundry labor and material cost, and utility costduring her stay. If Natalie’s bid is greater than the additional cost of servicingNatalie’s room for the night, then the Hotel Monaco will likely accept her bid.This use and analysis of managerial accounting information is called differentialanalysis and is discussed in greater detail in Chapter 25.


PROBLEMS

Prob. 16–1A (FIN MAN); Prob. 1–1A (MAN)

Cost

Product Costs Period CostsDirect

MaterialsCost

DirectLaborCost

FactoryOverhead

CostSelling

ExpenseAdministrative

Expense

a Xb Xc Xd Xe Xf Xg Xh Xi Xj Xk Xl X

m Xn Xo Xp Xq Xr Xs Xt Xu Xv Xw Xx Xy Xz X


Prob. 16–2A (FIN MAN); Prob.1-2A (MAN)

Cost


MaterialsCost

DirectLaborCost

FactoryOverhead

CostSelling


Expense


m Xn Xo Xp Xq Xr Xs Xt Xu Xv Xw Xx X


Prob. 16–3A (FIN MAN); Prob. 1-3A (MAN)1. The most logical definition for the final cost object would be the patient. The reason is

that the cost can be accumulated at the patient level for billing and insurance reimbursement purposes.

2. Cost Direct Indirect


m Xn Xo Xp Xq Xr Xs Xt Xu X


Prob. 16–4A (FIN MAN); Prob. 1–4A (MAN)1. Prius Company

a. $240,680 ($712,800 + $280,280 – $752,400)b. $2,138,400 ($752,400 + $1,058,400 + $327,600)c. $2,224,800 ($2,138,400 + $540,000 – $453,600)d. $2,203,200 ($475,200 + $2,224,800 – $496,800)e. $1,936,800 ($4,140,000 – $2,203,200)f. $1,396,800 ($1,936,800 – $540,000)

Volt Companya. $339,000 ($177,000 + $342,000 – $180,000)b. $516,000 ($1,035,000 – $339,000 – $180,000)c. $453,000 ($1,477,500 – $1,024,500)d. $177,000 ($1,024,500 + $204,000 – $1,051,500)e. $624,000 ($1,675,500 – $1,051,500)f. $240,000 ($624,000 – $384,000)

2. VOLT COMPANYStatement of Cost of Goods ManufacturedFor the Month Ended December 31, 2016

Work in process inventory, December 1, 2016 $ 442,500Direct materials:

Materials inventory, December 1, 2016 $177,000Purchases 342,000Cost of materials available for use $519,000Less materials inventory, December 31, 2016 180,000

Cost of direct materials used in production $339,000Direct labor 516,000Factory overhead 180,000Total manufacturing costs incurred during December 1,035,000Total manufacturing costs $1,477,500Less work in process inventory, December 31, 2016 453,000Cost of goods manufactured $1,024,500


Prob. 16–4A (FIN MAN); Prob. 1–4A (MAN) (Concluded)

3. VOLT COMPANYIncome Statement

For the Month Ended December 31, 2016

Sales $1,675,500Cost of goods sold:

Finished goods inventory, December 1, 2016 $ 204,000Cost of goods manufactured 1,024,500Cost of finished goods available for sale $1,228,500Less finished goods inventory, December 31, 2016 177,000

Cost of goods sold 1,051,500Gross profit $ 624,000Operating expenses 240,000Net income $ 384,000


Prob. 16–5A (FIN MAN); Prob. 1-5A (MAN)

1.


THE NEWQUEST CORPORATIONStatement of Cost of Goods

Manufactured For the Year Ended December 31, 2016Work in process inventory, January 1, 2016 $ 631,800

Direct materials:Materials inventory, January 1, 2016 $351,000Purchases 659,800Cost of materials available for use $1,010,800Less materials inventory, December 31, 2016 436,800

Cost of direct materials used inproduction $574,000

Direct labor 670,800Factory overhead:

Indirect labor $ 78,750Depreciation expense—factory equipment 56,160Heat, light, and power—factory 22,460Property taxes—factory 18,500Rent expense—factory 32,000Supplies—factory 15,400Miscellaneous cost—factory 9,500

Total factory overhead 232,770Total manufacturing costs incurred during

the year 1,477,570Total manufacturing costs $2,109,370Less work in process inventory,

December 31, 2016 592,800Cost of goods manufactured $1,516,570

Prob. 16–5A (FIN MAN); Prob. 1-5A (MAN) (Concluded)

2.

THE NEWQUEST CORPORATIONIncome Statement

For the Year Ended December 31, 2016


Finished goods inventory, January 1, 2016 $ 608,400Cost of goods manufactured 1,516,570Cost of finished goods available for sale $2,124,970Less finished goods inventory,

December 31, 2016 576,000Cost of goods sold 1,548,970

Gross profit $1,461,030Operating expenses:

Administrative expenses:Office salaries expense $185,000Depreciation expense—office

equipment 42,120Property taxes—office building 32,400 $ 259,520

Selling expenses:Advertising expense $296,400Sales salaries expense 420,000 716,400

Total operating expenses 975,920Net income $ 485,110


Prob. 16–1B (FIN MAN); Prob. 1–1B (MAN)

Cost


MaterialsCost

DirectLaborCost

FactoryOverhead

CostSelling


Expense

a Xb Xc Xd Xe Xf Xg Xh X*i Xj Xk Xl X

m Xn Xo Xp Xq Xr Xs Xt Xu Xv Xw Xx Xy Xz X

*Item h might also be classified as direct material cost if the cost is significant because itcan be directly traced to the end product.



Cost


MaterialsCost

DirectLaborCost

FactoryOverhead

CostSelling


Expense


m Xn Xo Xp Xq Xr Xs Xt Xu X*v Xw Xx X

*Health insurance premiums are employment benefits for direct labor, and are included as part of thedirect labor cost.


Prob. 16–3B (FIN MAN); Prob. 1–3B (MAN)1. The most logical definition for the final cost object would be a hotel guest. Guests

consume services such as a meal, a night’s stay in a hotel room, room service,a telephone call, etc.

2. Cost Direct Indirect


m Xn Xo Xp Xq Xr Xs Xt Xu Xv Xw X


Prob. 16–4B (FIN MAN); Prob. 1–4B (MAN)1. On Company

a. $30,800 ($282,800 + $65,800 – $317,800)b. $854,000 ($317,800 + $387,800 + $148,400)c. $800,800 ($854,000 + $119,000 – $172,200)d. $827,400 ($224,000 + $800,800 – $197,400)e. $299,600 ($1,127,000 – $827,400)f. $182,000 ($299,600 – $117,600)

Off Companya. $581,560 ($685,720* + $91,140 – $195,300)b. $685,720 ($1,519,000 – $256,060 – $577,220)c. $195,300 ($1,727,320 – $1,532,020)d. $256,060 ($1,532,020 + $269,080 – $1,545,040)e. $399,280 ($1,944,320 – $1,545,040)f. $234,360 ($399,280 – $164,920)

* Note: The student must calculate part (b) prior to calculating part (a) becausethe solution to part (b) is needed as an input to part (a).

2. ON COMPANYStatement of Cost of Goods ManufacturedFor the Month Ended December 31, 2016

Work in process inventory, December 1, 2016 $119,000Direct materials:

Materials inventory, December 1, 2016 $ 65,800Purchases 282,800Cost of materials available for use $348,600Less materials inventory, December 31, 2016 30,800

Cost of direct materials used in production $317,800Direct labor 387,800Factory overhead 148,400Total manufacturing costs incurred during

December 854,000Total manufacturing costs $973,000Less work in process inventory, December 31, 2016 172,200Cost of goods manufactured $800,800


Prob. 16–4B (FIN MAN); Prob. 1–4B (MAN) (Concluded)

3. ON COMPANYIncome Statement

For the Month Ended December 31, 2016


Finished goods inventory, December 1, 2016 $ 224,000Cost of goods manufactured 800,800Cost of finished goods available for sale $1,024,800Less finished goods inventory, December 31, 2016 197,400

Cost of goods sold 827,400Gross profit $ 299,600Operating expenses 117,600Net income $ 182,000



1. SHANIKA COMPANYStatement of Cost of Goods Manufactured


Work in process inventory, January 1, 2016 $109,200Direct materials:

Materials inventory, January 1, 2016 $ 77,350Purchases 123,500Cost of materials available for use $200,850Less materials inventory, December 31, 2016 95,550

Cost of direct materials used in production $105,300Direct labor 186,550Factory overhead:

Indirect labor $ 23,660Depreciation expense—factory equipment 14,560Heat, light, and power—factory 5,850Property taxes—factory 4,095Rent expense—factory 6,825Supplies—factory 3,250Miscellaneous cost—factory 4,420

Total factory overhead 62,660Total manufacturing costs incurred during the year 354,510Total manufacturing costs $463,710Less work in process inventory, December 31, 2016 96,200Cost of goods manufactured $367,510


Prob. 16–5B (FIN MAN); Prob. 1–5B (MAN) (Concluded)

2. SHANIKA COMPANYIncome Statement


Sales $864,500Cost of goods sold:

Finished goods inventory, January 1, 2016 $113,750Cost of goods manufactured 367,510Cost of finished goods available for sale $481,260Less finished goods inventory,

December 31, 2016 100,100Cost of goods sold 381,160

Gross profit $483,340Operating expenses:

Administrative expenses:Office salaries expense $ 77,350Depreciation expense—office equipment 22,750Property taxes—headquarters building 13,650 $113,750

Selling expenses:Advertising expense $ 68,250Sales salaries expense 136,500 204,750

Total operating expenses 318,500Net income $164,840


CASES & PROJECTS

CP 16–1 (FIN MAN); CP 1–1 (MAN)Although Fred may appear to have technically complied with company policy, his computation of the cost of lumber is unethical. Fred has created an apparent conflict-of-interest situation. Thus, although it is appropriate for Fred to take advantage of H. Jeckel’s policy of allowing employees to purchase materials at cost, he should have had someone else (such as his supervisor) determine the amount that he owed for the lumber. Clearly, selecting the lowest price has opened the door for criticism.

CP 16–2 (FIN MAN); CP 1–2 (MAN)The objectives of managerial accounting and financial accounting are different; therefore, the vice president’s statement is very incomplete. In one sense, the statement may be true at only very high levels in the organization. For example, the division manager may be evaluated on the basis of financial accounting profit.Thus, the divisional manager would be evaluated by central management in nearly the same way that central management is evaluated by shareholders.

Lower in the organization, the financial concerns of the stockholder begin to diverge significantly from the day-to-day operating decision needs of the manager.As such, the statement becomes very inaccurate the closer one gets to the actual operations. Operational performance measures will focus on cost, quality, delivery time, equipment availability, inventory levels, scrap, waste, and efficiency. This list is much broader and more detailed than the financial statement numbers provided to the stockholders.

The stockholders’ interest in profit is related to increasing shareholder value.Managers must increase long-term shareholder value by engaging in strategies that enhance people, product, and processes in the delivery of value to customers.These strategies can be measured by both financial and nonfinancial means.Therefore, it is not surprising to see a much broader set of objective and subjective measures used internally in the organization to guide strategy and operations.


CP 16–3 (FIN MAN); CP 1–3 (MAN)1. The vice president of the Information Systems Division can use managerial

accounting information in a number of different ways. For example, the vicepresident might use these data to determine resources that will be requiredbased on a projection of amount and type of work required for the next period.Managerial accounting information would also be used to determine whetherthe bank should lease additional processing capacity or purchase a newcentral processing unit. In addition managerial accounting information couldalso be used to achieve better control over information systems activities byevaluating the costs of ongoing operations, based on the demand forinformation services.

2. The hospital administrator can use managerial accounting information in anumber of different ways. One way is for cost planning and control. Theadministrator could use managerial information to keep costs commensuratewith services provided and to plan for staffing and nursing levels. Thisinformation can be used to determine the cost of various services and, thereby,in making decisions with respect to the amount of service that is appropriatein each particular case. The administrator can also use managerial accountinginformation to determine if the hospital’s costs are being covered by fixedpayments from Medicare, Medicaid, or insurance. If not, the administrator needsto know the source of the cost overruns. Does the hospital allow too manyprocedures? Require longer bed days? Have resources that are underutilized(e.g., a cancer wing with three patients)?

3. The CEO of the food company will use managerial accounting informationto support the control of the three divisions. Each of the three divisions willbe subject to a number of financial goals. The CEO also needs to supportstrategic decision making. In this regard, the CEO needs managerialaccounting information on the profitability of various product families,profitability of different regions, and profitability of various customersegments. This information can guide the CEO in allocating future effortand resources.

4. The copy shop manager needs fairly simple managerial accounting information.At the most basic level, the copy shop manager needs to know the costs ofperforming various copy tasks, such as one-sided copy, two-sided copy,collating, binding, etc. These activities will have some direct costs, such aspaper, and some indirect costs, such as copy machine time. The manager willneed to estimate the impact of both of these costs in order to price the variouscopy jobs to the public. Managerial accounting information will include the costdetails necessary to price the various copy shop services at a level to coverequipment costs, lease expenses, and profit.


CP 16–4 (FIN MAN); CP 1–4 (MAN)1. Obie’s bill has a number of points that should be considered. Some of the

points, with the appropriate argument, are identified below.

a. The trip back to the shop resulted in an $80 labor charge. Obie shouldargue that the whole hour should not be billed. The hour is the result ofstocking out of a circuit board on the truck. The circuit board shouldhave been with the repair person. There was a board for the previouscustomer. However, because only one was stocked, the repair person hadto go back to the shop. The trip back to the shop was nonproductive timethat should not have been directly charged to Obie but should be part ofGeek Chic’s overhead cost to all customers. In other words, Obieshould not be responsible for this mistake.

b. The overtime premium should not have been charged to Obie. What ifObie was the first appointment in the morning? If so, then there would beno overtime premium. It’s only random misfortune that Obie was the lastclient of the day and therefore received the overtime premium. Add tothis the fact that the overtime would not have been necessary withoutthe trip back to the shop, and the conclusion is that Obie should not bedirectly charged for overtime. The overtime premium should be part ofGeek Chic’s overhead charged to all clients equally. Obie should becharged the overtime only if the decision for overtime was caused by orrequired by Obie.

Thus, the labor portion of the bill should only be $70 + $60 + $60 = $190.

There are other parts of the bill that should not be in dispute.

● The materials storage and handling charge is a normal charge ofmaintaining a parts inventory for the benefit of clients that need parts.

● The fringe benefits and overhead added to the hourly rate are bothreasonable. The fringe benefit attaches directly to the direct labor. Fringebenefits are just another form of compensation. The overhead must becovered by all customers. Therefore, including overhead in the hourly rateis the most logical method of covering these costs.

● The additional charge for the first hour is also reasonable. The first hourcharge covers the costs of transit, which are directly attributable tomaking a home visit. Obie requires a home visit, so Obie should beresponsible for the costs of making the visit. If Obie brought the computerto the shop, this cost would not be incurred.


CP 16–4 (FIN MAN); CP 1–4 (MAN) (Concluded)Direct Direct

2. Cost Materials Labor OverheadCircuit board………………………………… XStorage and handling……………………… XStraight-time labor…………………………… XFringe benefits*……………………………… XOverhead……………………………………… XVehicle depreciation and fuel……………… XOvertime premium…………………………… X

*Could be considered overhead.

CP 16–5 (FIN MAN); CP 1–5 (MAN)1. The High Times manager will use managerial accounting information

to accumulate the costs associated with different menu items. The costs,direct and indirect, will help in determining the pricing strategy.

2. The plant manager is going to use cost information on scrap and rework toidentify the amount of waste occurring in the plant. This measure of waste isfairly common in fabrication-type facilities. The measures can guide the plantmanager to locations or products where significant waste is occurring. Theplant manager can use the scrap and rework measures to guide operationalimprovement toward the location that is experiencing the greatest level ofscrap or rework. The measures can also monitor improvement in rework andcontrol the number of network hours charged by floor personnel.

3. The cost of ending inventory must be determined as financial statementsare prepared. The division controller will likely require inventory valuationat the close of every month in order to have a good understanding of themonth-by-month earnings of the division. The division controller will providethe ending inventory information by using managerial accounting informationin determining the cost of products. To determine the appropriate cost, theproduct cost is multiplied by the units left in inventory.

4. The Maintenance Department manager needs to be able to plan the resourcesto be used by his department. The planning process involves identifying therequired resources to fulfill the department’s objective. For example, theMaintenance Department manager may know the repair histories of variousmachines. These histories can be used to forecast the repairs anticipatedduring the next year. The manager may also know that a new process will bebrought online during the next year. New processes are frequently troublesome,so the manager will need to budget additional resources to accommodateintroduction of the new technology.


CP 16–6 (FIN MAN); CP 1–6 (MAN)Note to Instructors: Consider having the teams compete for the most examples.Have half the class do the pizza restaurant and the other the copy shop, andcompare results.

Some examples that may be offered by the students are the following:

Copy and Graphics ShopDirect Direct Selling

Cost Materials Labor Overhead ExpensesPaper………………………………………… XGraphic designer wages………………… XManager salary……………………………… XLease cost of copy machine……………… XCoupon costs……………………………… XAdvertising………………………………… XPackaging (bags and boxes)…………… XInk…………………………………………… XRepair costs………………………………… XProperty taxes……………………………… XStore depreciation………………………… XCashier salary……………………………… XBuilding heat and A/C……………………… XCopy machine operator wages………… XComputer depreciation…………………… XBrochures…………………………………… X


CP 16–6 (FIN MAN); CP 1–6 (MAN) (Concluded)Pizza Restaurant

Direct Direct SellingCost Materials Labor Overhead ExpensesIngredients……………………………………… XCook wages…………………………………… XManager salary………………………………… XDepreciation on equipment

and fixtures…………………………………… XCoupon costs………………………………… XAdvertising……………………………………… XTo-go boxes…………………………………… XDisposable plates, utensils, cups………… XNondisposable plates, utensils, cups…… XRepair costs…………………………………… XProperty taxes………………………………… XStore depreciation…………………………… XCashier salary………………………………… XBeverages……………………………………… XBuilding heat and A/C………………………… XSalad ingredients……………………………… XDelivery person wages……………………… XPower costs for ovens……………………… X

In service businesses, the distinction between direct labor and overhead will notalways be clear.


Documents

testbank10.com · Web viewMIX-A-LOT MANUFACTURING COMPANYStatement of Cost of Goods ManufacturedFor the Month Ended March 31, 2016Work in process inventory, March 1, 2016$214,200Direct