Revised Spring 2018 Chapter 1 Review
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MANAGERIAL ACCOUNTING
LO 1: Understand the difference in managerial and financial accounting:
Financial
Managerial
External Users
Quarterly/Annual Financial Statement
General Purpose Reports
GAAP - Audited
Internal Users
Internal Reports
Special Purpose Reports
Used for Decision Making Purposes
Understand Management Responsibilities and Structure
Responsibilities:
Planning: looking ahead to establish objectives that add value to the business
Directing: coordinating company’s activities and human resources to operate effectively
Controlling: keeping all the activities on track to accomplish objectives
Structure:
LO 2: MANUFACTURING COSTS
Terms
Direct Materials
Indirect Materials
Direct Labor
Indirect Labor
Manufacturing Overhead
Product Cost
Period Cost
Manufacturing consists of activities and processes that convert raw materials into finished
goods.
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Raw Materials: Basic material and parts used in the manufacturing process
Work in Process: Product costs associated with partially completed units
Finished Goods: Completed units that are unsold
PRODUCT COSTS: Manufacturing Costs
PERIOD COSTS: Nonmanufacturing Costs
Direct Materials
Direct Labor
Manufacturing Overhead (all indirect costs)
Selling Expenses
Administrative Expenses
Practice #1
Indicate how a manager would assign the following costs to the various categories for a
motorcycle company.
Product Costs
Direct Materials
Direct Labor
Period Cost
Engines
Labor costs
Factory
Equipment
Depreciation
Electricity to run
factory
equipment
Advertising
Salary of Plant
Manager
Shipping of
finished product
Salary of CFO
Lubricant for
tightening screws
Motorcycle seat
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LO 3: FINANCIAL STATEMENTS
Terms
Cost of Goods Sold
Cost of Goods Manufactured
Total Manufacturing Costs
Raw Materials
Work in Process Inventory
Finished Goods Inventory
Cost of Goods Manufactured
1) Start with the Beginning Work in Process
2) Find Direct Materials Used
3) Find Total Manufacturing Costs
4) Find Cost of Goods Manufactured
Use this basic equation:
beginning balance + additions – deductions = ending balance
1) Find Beginning Work in Process
2) Find Direct Materials Used
Raw Materials Beginning Inventory
+ Raw Materials Purchased
= Raw Materials Available for Use
- Raw Materials Ending Inventory
= Direct Materials Used
3) Find Total Manufacturing Costs
Direct Materials Used (Step 2)
+ Direct Labor
+Total Manufacturing Overhead
=Total Manufacturing Costs
4) Find Cost of Goods Manufactured
Work in Process Beginning Inventory (Step 1)
+Total Manufacturing Costs (Step 3)
= Total Cost of Work in Process
- Work in Process Ending Inventory
= Cost of Goods Manufactured
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Beginning
Work in
Process
Inventory
+
Total
Manufacturing
Costs
=
Total
Cost of
Work in
Process
-
Ending Work
in Process
Inventory
=
Cost of
Goods
Manufactured
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Cost of Goods Sold on the Income Statement
Beginning Finished
Goods Inventory
+
Cost of Goods
Manufactured
-
Ending Finished
Goods Inventory
=
Cost of Goods
Sold
Inventory on the Balance Sheet
Manufacturing companies have three inventory accounts: raw materials inventory,
work-in-process inventory and finished goods inventory.
Raw Materials inventory includes all the direct and indirect materials purchased
but not yet used in the manufacturing or production process.
Work-In-Process Inventory includes all the direct materials, direct labor and
manufacturing overhead costs that have been added to the manufacturing
process but for which production has not been completed.
Finished Goods Inventory includes all manufacturing costs for products that have
been completed but not sold.
Raw Materials
Work in Process
Finished Goods
Direct Materials
Used
Cost of Goods
Manufactured
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Practice #2
T Company has provided the following data for the month of July:
Beginning
Ending
Work-in-process inventory
$23,000
$21,000
Finished goods inventory
26,000
35,000
July Activity
Direct materials used
$56,000
Direct labor incurred
91,000
Manufacturing overhead
61,000
Required:
a)
Determine total manufacturing costs, cost of goods manufactured
and cost of goods sold for July.
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LO 4: TRENDS
Terms
Value Chain
Just in Time Inventory
Total Quality Management
Theory of Constraints
Activity Based Costing
Balanced Scorecard
Sarbanes-Oxley Act
Corporate Social Responsibility
Triple Bottom Line
Solution #1
Indicate how a manager would assign the
following costs to the various categories for a
motorcycle company.
Product Costs
Direct
Materials
Direct
Labor
Manufacturing
Overhead
Period
Cost
Engines
X
Labor costs
X
Factory
Equipment
Depreciation
X
Electricity
to run
factory
equipment
X
Advertising
X
Salary of
Plant
Manager
X
Shipping of
finished
product
X
Salary of
CFO
X
Lubricant
for
tightening
screws
X
Motorcycle
seat
X
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Solution #2
a)
Direct materials used
$56,000
Direct labor incurred
91,000
Manufacturing overhead
61,000
Total manufacturing cost
$208,000
Beginning work-in-process
$23,000
Total manufacturing cost
208,000
Ending work-in-process
21,000
Cost of goods manufactured
$210,000
Beginning finished goods
$26,000
Cost of goods manufactured
210,000
Ending finished goods
35,000
Cost of goods sold
$201,000
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Practice Problems
Practice #2
P Company has provided the following data for the month of March:
Beginning
Ending
Raw materials inventory
$25,000
$30,000
Work-in-process inventory
16,000
18,000
Finished goods inventory
36,000
59,000
March Activity
Direct materials purchases
$71,000
Direct labor incurred
83,000
Manufacturing overhead
74,000
Indirect materials included in overhead
5,000
Required:
Prepare a Schedule of Cost of Goods Manufactured and a Partial
Income Statement Showing the Cost of Goods Sold
Solution #2
Schedule of Cost of Goods Sold
Beginning finished goods inventory
$36,000
Cost of goods manufactured
216,000
Goods available for sale
252,000
less: Ending finished goods inventory
59,000
Cost of goods sold
$193,000
Schedule of Cost of Goods Manufactured
Beginning raw materials inventory
$25,000
Direct materials purchases
71,000
Raw materials available for use
96,000
less: Ending raw materials inventory
30,000
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Raw materials used
66,000
less: indirect materials used
5,000
Direct materials used
61,000
Direct labor incurred
83,000
Manufacturing overhead inventory
74,000
Practice #3
D Company reported the following information on its income statements for the first quarter:
January
February
March
Beginning Finished goods inventory
$61,600
?
?
Cost of Goods Manufactured
229,000
?
531,400
Goods Available for Sale
?
260,000
?
Cost of Goods Sold
?
?
531,400
Ending Finished goods inventory
72,800
61,600
?
Required:
Determine the missing values.
Solution #3
January
February
March
Beginning Finished goods inventory
$61,600
72,800
61,600
Cost of Goods Manufactured
229,000
187,200
531,400
Goods Available for Sale
290,000
260,000
593,000
Cost of Goods Sold
217,200
198,400
531,400
Ending Finished goods inventory
72,800
61,600
61,600
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True / False Questions
1.
Total beginning finished goods inventory + cost of goods manufactured
-
ending finished goods inventory
=
cost of goods sold.
True False
2.
Cost of Goods Manufactured represents the total direct materials, direct labor
and overhead added to work-in-process inventory.
True False
3.
The schedule of cost of goods manufactured is the same as the statement of
cost of goods sold.
True False
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Multiple Choice Questions
1.
On the Schedule of Cost of Goods Manufactured, the final Cost of Goods
Manufactured figure represents:
a) The amount of cost charged to Work in Process during the period
b) The amount of cost transferred from Finished Goods to Cost of Goods Sold
during the period
c) The amount of cost placed into production during the period
d) The amount of cost of goods completed during the current year whether
they were started before or during the current year
The next 2 questions refer to the following information.
A manufacturing company has a beginning finished goods inventory balance of
$14,600, cost of goods manufactured of $32,500 and an ending finished goods
inventory balance of $17,800.
2.
The cost of goods sold is:
a) $21,200
b) $29,300
c) $32,500
d) $27,600
3.
The total costs transferred from work-in-process inventory to finished goods
inventory is:
a) $21,200
b) $29,300
c) $32,500
d) $27,600
4.
R Company had finished goods inventory $3,200 on January 1 and $4,000 on
December 31. During the year, cost of goods sold was $14,200. Cost of
goods manufactured was:
a) $21,400
b) $11,000
c) $15,000
d) $17,400
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5.
J Company had the following inventory balances for the year:
January 1
December 31
Raw Materials
$57,000
$60,000
Work-in-process
68,000
50,000
Finished goods
79,000
40,000
Raw materials used in manufacturing during the year were $118,000. Raw
materials purchases during the year were:
a) $107,000
b) $115,000
c) $118,000
d) $121,000
6.
Total manufacturing costs incurred do not include:
a) Direct materials used
b) Factory supplies used
c) Direct materials purchased
d) Indirect labor used
7.
D Company reported the following information for the year:
Ending work-in-process inventory
$4,000
Beginning work-in-process inventory
3,000
Factory overhead
5,100
Direct labor cost
7,000
Direct materials used
5,000
Manufacturing costs added to work-in-process inventory were:
a) $12,000
b) $16,100
c) $13,600
d) $17,100
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Solutions to Practice Problems
Practice Problem #1
Factory supplies
$7,000
Factory depreciation
2,000
Indirect labor
23,000
Total Overhead
$32,000
Practice Problem #2
Direct labor
$43,000
Manufacturing overhead
71,000
Total Conversion Cost
$114,000
Total manufacturing cost
218,000
Beginning work-in-process inventory
16,000
234,000
less: Ending work-in-process inventory
18,000
Cost of goods manufactured
$216,000
Practice Problem #5
Beginning raw materials inventory
$28,000
Direct materials purchases
72,000
Direct materials used
86,000
Ending raw materials inventory
$14,000
Total manufacturing cost
$309,000
less: Direct materials used
86,000
Direct labor incurred
112,000
Manufacturing overhead
$111,000
Ending work-in-process inventory
$25,000
Cost of goods manufactured
307,000
less: Total manufacturing cost
309,000
Beginning work-in-process inventory
$23,000
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Beginning finished goods inventory
$37,000
Cost of goods manufactured
307,000
less: Ending finished goods inventory
55,000
Cost of goods sold
$289,000
Practice Problem #6
Schedule of Cost of Goods Manufactured
Beginning raw materials inventory
$8,000
Direct materials purchases
18,000
Raw materials available for use
26,000
less: Ending raw materials inventory
8,700
Direct materials used
17,300
Direct labor incurred
10,000
Manufacturing overhead
15,000
Total manufacturing cost
42,300
Beginning work-in-process inventory
2,100
44.400
less: Ending work-in-process inventory
3,200
Cost of goods manufactured
$41,200
Income Statement
Sales
$55,300
Cost of Goods Sold:
Beginning finished goods inventory
$5,000
Cost of goods manufactured
41,200
Goods available for sale
46,200
less: Ending finished goods inventory
5,700
Cost of goods sold
40,500
Gross Profit
14,800
Selling and administrative expenses
6,300
Net Income
$8,500
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Solutions to True / False Problems
1.
True
2.
False – cost of goods manufactured are the costs added to
finished goods inventory. Total manufacturing costs are the direct
materials, direct labor and overhead added to work-in-process.
3.
False – they are different statements.
4.
5.
6.
7.
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Solutions to Multiple Choice Questions
1.
D
2.
B
3.
C
4.
C
5.
D
6.
C
7.
D