CHAPTER 1

BRIEF EXERCISES
BE 161
Presented below are Truck Company’s monthly manufacturing cost data related to its personal
computer products.
(a) Taxes on factory building $820,000
(b) Raw materials 66,000
(c) Depreciation on manufacturing equip. 210,000
(d) Wages for assembly line workers 340,000

Instructions
Enter each cost item in the following table, placing an “X” under the appropriate headings.
Product Costs
Direct Materials Direct Labor Factory Overhead
(a)
(b)
(c)
(d)

Solution 161 (3 min.)

Product Costs
Direct Materials Direct Labor Factory Overhead
(a) X
(b) X
(c) X
(d) X
BE 162
Determine whether each of the following costs should be classified as direct materials (DM),
direct labor (DL), or manufacturing overhead (MO).
a. ____ Depreciation on factory equipment
b. ____ Table legs used in manufacturing tables
c. ____ Wages paid to assembly line workers
d. ____ Factory rent

Solution 162 (2 min.)

a. MO
b. DM
c. DL
d. MO
1-2 Test Bank for ISV Managerial Accounting, Fourth Edition

BE 163
Indicate whether each of the following costs of a pencil manufacturer would be classified as direct
materials (DM), direct labor (DL), or manufacturing overhead (MO).
a. ____ Depreciation of pencil painting machinery
b. ____ Lead inserted into pencils
c. ____ Factory utilities
d. ____ Wages of assembly line worker
e. ____ Salary of supervisor
f. ____ Factory machinery maintenance
g. ____ Wood
h. ____ Eraser compound

Solution 163 (4 min.)

a. MO
b. DM
c. MO
d. DL
e. MO
f. MO
g. DM
h. DM

BE 164
Presented below are Cricket Company’s monthly manufacturing cost data related to its personal
computer products.
a. Hard drives and memory sticks $30,000
b. Wages to assemble equipment $65,000
c. Insurance on manufacturing building $41,000
d. Wages for factory supervisors $64,000

Instructions
Enter each cost item in the following table, placing an ‘X’ under the appropriate headings.

Product Costs
Direct Materials Direct Labor Factory Overhead
a.
b.
c.
d.
 Managerial Accounting 1-3

Solution 164 (2 min.)

Product Costs
Direct Materials Direct Labor Factory Overhead
a. X
b. X
c. X
d. X

BE 165
Identify whether each of the following is classified as a product cost or a period cost.
______________ 1. Direct labor
______________ 2. Direct materials
______________ 3. Factory utilities
______________ 4. Repairs to office equipment
______________ 5. Property taxes on factory building
______________ 6. Sales salaries

Solution 165 (5 min.)

1. Product cost 4. Period cost
2. Product cost 5. Product cost
3. Product cost 6. Period cost

BE 166
Criba Manufacturing Company has the following data: direct labor $630,000, direct materials
used $421,000, total manufacturing overhead $206,000, and beginning work in process $42,000.

Instructions
Compute (a) total manufacturing costs and (b) total cost of work in process.

Solution 166 (5 min.)

(a) Direct labor $ 630,000
Direct materials used 421,000
Total manufacturing overhead 206,000
Total manufacturing costs $1,257,000

(b) Beginning work in process $ 42,000

Total manufacturing costs 1,257,000
Total cost of work in process $1,299,000
1-4 Test Bank for ISV Managerial Accounting, Fourth Edition

BE 167
Presented below are incomplete 2009 manufacturing cost data for Swartnez Corporation.

Direct Materials Used Direct Labor Factory Overhead Total Manufacturing Costs
(a) $ 17,000 $42,000 ? $ 73,000

(b) $148,000 ? $112,000 $420,000

Instructions
Determine the missing amounts.

Solution 167 (3 min.)

(a) Total manufacturing costs $73,000
Less: Direct materials used (17,000)
Less: Direct labor (42,000)
Equals: Factory overhead $14,000

(b) Total manufacturing costs $420,000

Less: Direct materials (148,000)
Less: Factory overhead (112,000)
Equals: Direct labor used $160,000
 Managerial Accounting 1-5

BE 168
Presented below are incomplete 2008 manufacturing cost data for Supreme Corporation.
Direct Materials Used Direct Labor Factory Overhead Total Manufacturing Costs
(a) $38,000 $72,000 ? $164,000

(b) $95,000 ? $70,000 $305,000

(c) ? $80,000 $120,000 $260,000

Instructions
Determine the missing amounts.

Solution 168 (4 min.)

Direct Materials Used Direct Labor Factory Overhead Total Manufacturing Costs
(a) $38,000 $72,000 $54,000 $164,000

(b) $95,000 $140,000 $70,000 $305,000

(c) $60,000 $80,000 $120,000 $260,000

BE 169
Raynor Manufacturing Company has the following data:
Direct labor $46,000
Direct materials used 84,000
Total manufacturing overhead 60,000
Ending work in process 30,000
Beginning work in process 40,000

Instructions
Compute (a) total manufacturing costs and (b) cost of goods manufactured.

Solution 169 (5 min.)

(a) Direct labor $ 46,000
Direct materials used 84,000
Total manufacturing overhead 60,000
Total manufacturing costs $190,000

(b) Beginning work in process $ 40,000

Total manufacturing costs 190,000
Less ending work in process (30,000)
Cost of goods manufactured $200,000
1-6 Test Bank for ISV Managerial Accounting, Fourth Edition

BE 170
In alphabetical order below are current asset items for Sudler Company as of December 31,
2008. Prepare the current assets section of the company’s balance sheet as of the same date.
Accounts receivable $41,000
Cash 56,000
Finished goods 21,000
Prepaid expenses 3,000
Raw materials 12,000
Work in process 32,000

Solution 170 (4 min.)

Current Assets
Cash $ 56,000
Accounts receivable 41,000
Inventories
Finished goods $21,000
Work in process 32,000
Raw materials 12,000 65,000
Prepaid expenses 3,000
Total current assets $165,000

EXERCISES
Ex. 171
Financial accounting information and managerial accounting information have a number of
distinguishing characteristics. For each of the characteristics listed below, indicate which
characteristics are more closely related to financial accounting by placing the letter "F" in the
space to the left of the item and indicate those characteristics which are more closely associated
with managerial accounting by placing the letter "M" to the left of the item.
____ 1. General-purpose reports
____ 2. Reports are used internally
____ 3. Prepared in accordance with generally accepted accounting principles
____ 4. Special purpose reports
____ 5. Limited to historical cost data
____ 6. Reporting standard is relevance to the decision to be made
____ 7. Financial statements
____ 8. Reports generally pertain to the business as a whole
____ 9. Reports generally pertain to subunits
____ 10. Reports issued quarterly or annually
 Managerial Accounting 1-7

Solution 171 (7–11 min.)

1. F 6. M
2. M 7. F
3. F 8. F
4. M 9. M
5. F 10. F

Ex. 172
Determine whether each of the following is classified as:
DM: Direct materials
DL: Direct labor
MO: Manufacturing overhead

_____ 1. Assembly line workers' wages.

_____ 2. Factory supervisors' salaries.
_____ 3. Steel used in manufacturing product.
_____ 4. Insurance on factory building.
_____ 5. Rivets and screws used in production.
_____ 6. Tires used in manufacturing vehicles.

Solution 172 (5 min.)

1. DL 4. MO
2. MO 5. MO
3. DM 6. DM

Ex. 173
Presented below is a list of costs and expenses incurred in the factory by Nu-Way Corporation, a
manufacturer of recreational vehicles.
____ 1. Property taxes on the factory land
____ 2. Nails and glue used in production
____ 3. Cabinet maker's wages
____ 4. Factory supervisors’ salaries
____ 5. Metal used in manufacturing
____ 6. Depreciation on factory machines
____ 7. Factory utilities
____ 8. Carpeting for the recreational vehicles
____ 9. Property taxes on the factory building
____ 10. Insurance on factory equipment
1-8 Test Bank for ISV Managerial Accounting, Fourth Edition

Ex. 173 (cont.)

Instructions
Classify the above items into the following categories:

DM — Direct Materials
DL — Direct Labor
MO — Manufacturing Overhead

Solution 173 (8–10 min.)

1. MO 6. MO
2. MO 7. MO
3. DL 8. DM
4. MO 9. MO
5. DM 10. MO

Ex. 174
For each item, identify all applicable cost labels. Use the following code in your answer:
1 — Product Cost
2 — Period Cost

a. Advertising _______
b. Direct materials used _______
c. Sales salaries _______
d. Indirect factory labor _______
e. Repairs to office equipment _______
f. Factory manager's salary _______
g. Direct labor used _______
h. Indirect materials _______

Solution 174 (6–9 min.)

a. Advertising 2
b. Direct materials used 1
c. Sales salaries 2
d. Indirect factory labor 1
e. Repairs to office equipment 2
f. Factory manager's salary 1
g. Direct labor used 1
h. Indirect materials 1
 Managerial Accounting 1-9

Ex. 175
For each item listed below, indicate in the space to the left whether the item would be considered
a product cost or a period cost for a manufacturing company. Use the following code:

Pr = Product cost
Pe = Period cost

____ 1. Factory supervisory salaries

____ 2. Sales commissions

____ 3. Income tax expense

____ 4. Indirect materials used

____ 5. Indirect labor

____ 6. Office salaries expense

____ 7. Property taxes on factory building

____ 8. Sales manager's salary

____ 9. Factory wages expense

____ 10. Direct materials used

Solution 175 (7–10 min.)

1. Pr 6. Pe
2. Pe 7. Pr
3. Pe 8. Pe
4. Pr 9. Pr
5. Pr 10. Pr
1 - 10 Test Bank for ISV Managerial Accounting, Fourth Edition

Ex. 176
Yates Manufacturing Company incurs the following manufacturing costs and expenses during the
month of May.
1. Assembly line wages
2. Raw materials used directly in product
3. Depreciation on office equipment
4. Property taxes on factory building
5. Rent on factory building
6. Sales commissions
7. Depreciation on factory equipment
8. Factory utilities
9. Wages for factory maintenance workers
10. Advertising
11. Indirect materials used in production
12. Factory manager's salary

Instructions
Complete the following matrix by placing an X mark under the appropriate headings.
Direct Direct Manufacturing Period
Cost Item Materials Labor Overhead Costs
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

Solution 176 (10–15 min.)

Direct Direct Manufacturing Period
Cost Item Materials Labor Overhead Costs
1. X
2. X
3. X
4. X
5. X
6. X
7. X
8. X
9. X
10. X
11. X
12. X
 Managerial Accounting 1 - 11

Ex. 177
Presented below are incomplete 2008 manufacturing cost data for Tardy Corporation.

Total Work in Work in Cost of

Direct Materials Direct Manufacturing Manufacturing Process Process Goods
Used Labor Overhead Costs (1/1) (12/31) Manufactured
(a) $38,000 $72,000 $48,000 ? $120,000 $96,000 ?
(b) $149,000 $53,000 $90,000 $292,000 ? $98,000 $331,000
(c) $53,000 $116,000 $121,000 $290,000 $463,000 ? $515,000

Instructions
Determine the missing amounts.

Solution 177 (6 min.)

Total Work in Work in Cost of
Direct Materials Direct Manufacturing Manufacturing Process Process Goods
Used Labor Overhead Costs (1/1) (12/31) Manufactured
(a) $38,000 $72,000 $48,000 $158,000 $120,000 $96,000 $182,000
(b) $149,000 $53,000 $90,000 $292,000 $137,000 $98,000 $331,000
(c) $53,000 $116,000 $121,000 $290,000 $463,000 $238,000 $515,000

Ex. 178
Among the items that Gentry Print Shop accounts for are the following:
1. Direct labor ________
2. Office supplies used ________
3. Depreciation on printing machines ________
4. Finished goods inventory, 12/31 ________
5. Raw materials inventory, 1/1 ________
6. Cost of goods manufactured ________
7. Work in process, 1/1 ________
8. Office supplies inventory, 12/31 ________
9. Indirect labor ________
10. Heat and electricity for the print shop ________

Gentry Print Shop prepares the following schedule and financial statements on a yearly basis:
(a) Cost of goods manufactured schedule.
(b) Income statement.
(c) Balance sheet.

Instructions
For each item, indicate by using the appropriate letter(s) the schedule and/or financial statements
in which the item will appear.
1 - 12 Test Bank for ISV Managerial Accounting, Fourth Edition

Solution 178 (8–12 min.)

1. Direct labor (a)
2. Office supplies used (b)
3. Depreciation on printing machines (a)
4. Finished goods inventory, 12/31 (b), (c)
5. Raw materials inventory, 1/1 (a)
6. Cost of goods manufactured (a), (b)
7. Work in process, 1/1 (a)
8. Office supplies inventory, 12/31 (c)
9. Indirect labor (a)
10. Heat and electricity for the print shop (a)

Ex. 179
Isaac Company manufactures boats. During September, 2008, the company purchased 100
cellular phones at a cost of $100 each. Isaac withdrew 70 phones from the warehouse during the
month. Twenty of these phones were installed in salespersons’ cars and the remaining 50 phones
were put in boats manufactured during the month.

Of the boats put into production during September, 2008, 80% were completed and transferred to
the company's storage lot. Fifty percent of the boats completed during the month were sold by
September 30.

Instructions
Determine the cost of cellular phones that would appear in each of the following accounts at
September 30, 2008:
Raw materials inventory
Work in process inventory
Finished goods inventory
Cost of goods sold
Selling expenses

Solution 179 (12–17 min.)

Raw materials: (100 – 70) × $100 = $3,000
Work in process: (50 × 20%) × $100 = $1,000
Finished goods: (50 × 80% × 50%) × $100 = $2,000
Cost of goods sold: (50 × 80% × 50%) × $100 = $2,000
Selling expenses: 20 × $100 = $2,000

Costs to account for: 100 × $100 = $10,000

Raw materials inventory $ 3,000
Work in process inventory 1,000
Finished goods inventory 2,000
Cost of goods sold 2,000
Selling expenses 2,000
Total $10,000
 Managerial Accounting 1 - 13

Ex. 180
Manning Manufacturing Company has the following data at June 30, 2008:
Raw materials inventory, June 1 $ 13,800
Work in process inventory, June 1 18,100
Finished goods inventory, June 1 43,500
Total manufacturing costs 510,000
Sales 590,000
Work in process inventory, June 30 30,400
Finished goods inventory, June 30 50,200
Raw materials inventory, June 30 18,000

Instructions
(a) Prepare an income statement through gross profit for the month of June.
(b) Indicate the balance sheet presentation of the June 30 inventories.

Solution 180 (10–15 min.)

(a) MANNING MANUFACTURING COMPANY
(Partial) Income Statement
For the Month Ended June 30, 2008
——————————————————————————————————————————
Sales ...................................................................................................... $590,000
Cost of goods sold
Finished goods inventory, June 1 ................................................. $ 43,500
Cost of goods manufactured ......................................................... 497,700*
Cost of goods available for sale .................................................... 541,200
Finished goods inventory, June 30 ............................................... 50,200
Cost of goods sold ........................................................................ 491,000
Gross profit ............................................................................................ $ 99,000

*$18,100 + $510,000 – $30,400 = $497,700

(b) MANNING MANUFACTURING COMPANY

Current assets
Cash ........................................................................................ $ XXXX
Accounts receivable ................................................................ XXXX
Inventories:
Finished goods .................................................................. $50,200
Work in process ................................................................ 30,400
Raw materials ................................................................... 18,000 98,600
1 - 14 Test Bank for ISV Managerial Accounting, Fourth Edition

Ex. 181
From the account balances listed below, prepare a schedule of cost of goods manufactured for
Timmons Manufacturing Company for the month ended December 31, 2008.

Account Balances
Finished Goods Inventory, December 31 $42,000
Factory Supervisory Salaries 12,000
Income Tax Expense 18,000
Raw Materials Inventory, December 1 12,000
Work In Process Inventory, December 31 25,000
Sales Salaries Expense 14,000
Factory Depreciation Expense 8,000
Finished Goods Inventory, December 1 35,000
Raw Materials Purchases 95,000
Work In Process Inventory, December 1 30,000
Factory Utilities Expense 4,000
Direct Labor 70,000
Raw Materials Inventory, December 31 19,000
Sales Returns and Allowances 5,000
Indirect Labor 21,000

Solution 181 (12–16 min.)

TIMMONS MANUFACTURING COMPANY
Cost of Goods Manufactured Schedule
For the Month Ended December 31, 2008

Work in process, December 1 $ 30,000

Direct materials
Raw materials inventory, December 1 $12,000
Raw materials purchases 95,000
Total raw materials available for use 107,000
Less: Raw materials inventory, December 31 19,000
Direct materials used 88,000
Direct labor 70,000
Manufacturing overhead
Indirect labor $21,000
Factory supervisory salaries 12,000
Factory depreciation expense 8,000
Factory utilities expense 4,000
Total manufacturing overhead 45,000
Total manufacturing costs 203,000
Total cost of work in process 233,000
Less: Work in process, December 31 25,000
Cost of goods manufactured $208,000
 Managerial Accounting 1 - 15

Ex. 182
Rabid Manufacturing Company has the following data:
Direct labor $160,000
Direct materials used 191,000
Total manufacturing overhead 208,000
Beginning work in process 21,000
Instructions
Compute (a) total manufacturing costs and (b) total cost of work in process.

Solution 182 (6 min.)

(a) Direct labor $160,000
Direct materials used 191,000
Total manufacturing overhead 208,000
Total manufacturing costs $559,000

(b) Beginning work in process $ 21,000

Total manufacturing costs 559,000
Total cost of work in process $580,000

Ex. 183
The following costs and inventory data were taken from the accounts of Reser Company for
2008:
January 1, 2008 December 31, 2008
Inventories:
Raw materials $ 8,000 $ 7,000
Work in process 15,000 13,000
Finished goods 16,000 10,000

Costs incurred:
Raw materials purchases $93,000
Direct labor 42,000
Factory rent 8,000
Factory utilities 7,000
Indirect materials 4,000
Indirect labor 6,000
Selling expenses 5,000
Administrative expenses 12,000
Instructions
a. Prepare a schedule showing the amount of direct materials used in production during the
year.
b. Compute the amount of manufacturing overhead incurred during the year.
c. Prepare a schedule of Cost of Goods Manufactured for Reser Company for the year ended
December 31, 2008 in good form.
d. Prepare the Cost of Goods Sold section of the Income Statement for Reser Company for the
year ended December 31, 2008 in good form.
1 - 16 Test Bank for ISV Managerial Accounting, Fourth Edition

Solution 183 (18–20 min.)

a. Raw materials inventory, beginning $ 8,000
Raw materials purchases 93,000
Raw materials available for use 101,000
Less: Raw materials inventory, ending 7,000
Direct materials used $ 94,000

b. Manufacturing overhead:
Factory rent $ 8,000
Factory utilities 7,000
Indirect materials 4,000
Indirect labor 6,000
Total manufacturing overhead $25,000

c. Reser Company
Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 2008
Work in processing, beginning $ 15,000
Direct materials
Raw materials inventory, beginning $ 8,000
Raw materials purchases 93,000
Raw materials available for use 101,000
Less: Raw materials inventory, ending 7,000
Direct materials used $94,000
Direct labor 42,000
Manufacturing overhead 25,000
Total manufacturing costs 161,000
Total cost of work in process 176,000
Less: Work in process, ending 13,000
Cost of goods manufactured $163,000

d. Reser Company
(Partial) Income Statement
For the Year Ended December 31, 2008
Finished goods inventory, January 1 $ 16,000
Cost of goods manufactured 163,000
Cost of goods available for sale 179,000
Finished goods inventory, December 31 10,000
Cost of goods sold $169,000
 Managerial Accounting 1 - 17

Ex. 184
Manufacturing costs for Carson Company for selected months are as follows:
April July October
Beginning work in process $ 80,000 (f) $ 98,000
Direct materials used 280,000 $190,000 155,000
Direct labor 195,000 170,000 (j)
Manufacturing overhead (a) 150,000 90,000
Total manufacturing costs 720,000 510,000 470,000
Total cost of work in process (b) 650,000 (k)
Ending work in process 75,000 (g) (l)
Cost of goods manufactured (c) 505,000 385,000
Beginning finished goods (d) 68,000 (m)
Cost of goods available for sale 960,000 (h) 450,000
Ending finished goods (e) 75,000 (n)
Cost of goods sold 790,000 (i) 355,000

Instructions
Indicate the missing amounts. (Show computations.)

Solution 184 (12–17 min.)

(a) $245,000 ($720,000 – $280,000 – $195,000).

(b) $800,000 ($720,000 + $80,000).
(c) $725,000 ($800,000 – $75,000).
(d) $235,000 ($960,000 – $725,000).
(e) $170,000 ($960,000 – $790,000).
(f) $140,000 ($650,000 – $510,000).
(g) $145,000 ($650,000 – $505,000).
(h) $573,000 ($505,000 + $68,000).
(i) $498,000 ($573,000 – $75,000).
(j) $225,000 ($470,000 – $90,000 – $155,000).
(k) $568,000 ($98,000 + $470,000).
(l) $183,000 ($568,000 – $385,000).
(m) $65,000 ($450,000 – $385,000).
(n) $95,000 ($450,000 – $355,000).
1 - 18 Test Bank for ISV Managerial Accounting, Fourth Edition

Ex. 185
Fill in the missing information on the cost of goods manufactured schedule of Maddox
Manufacturing Company:

MADDOX MANUFACTURING COMPANY

Cost of Goods Manufactured Schedule
For the Year Ended December 31, 2008

Work in process (1/1) $320,000

Direct materials
Raw materials inventory (1/1) $ ?
Raw materials purchases 271,000
Raw materials available for use ?
Raw materials inventory (12/31) 37,000
Direct materials used $280,000
Direct labor ?
Manufacturing overhead
Indirect labor 24,000
Factory depreciation 38,000
Factory utilities 39,000
Total overhead ?
Total manufacturing costs ?
Total cost of work in process ?
Less: Work in process (12/31) 292,000
Cost of goods manufactured $520,000

Solution 185 (6–9 min.)

MADDOX MANUFACTURING COMPANY
Cost of Goods Manufactured Schedule
For the Year Ended December 31, 2008

Work in process (1/1) $320,000

Direct materials
Raw materials inventory (1/1) $ 46,000
Raw materials purchases 271,000
Raw materials available for use 317,000
Raw materials inventory (12/31) 37,000
Direct materials used $280,000
Direct labor 111,000
Manufacturing overhead
Indirect labor 24,000
Factory depreciation 38,000
Factory utilities 39,000
Total overhead 101,000
Total manufacturing costs 492,000
Total cost of work in process 812,000
Less: Work in process (12/31) 292,000
Cost of goods manufactured $520,000
 Managerial Accounting 1 - 19

Ex. 186
Data for the cost of direct materials for the month ended March 31, 2008, are as follows:
Materials inventory, March 1, 2008 $76,000
Materials inventory, March 31, 2008 85,000

During March, the company purchased $220,000 of raw materials on account from Pine
Company and $72,000 of raw materials for cash from Frye Company. In addition, $50,000 was
paid on the Pine account balance.

Instructions
Compute the cost of direct materials used during March.

Solution 186 (5–7 min.)

Raw materials inventory, March 1 $ 76,000
Raw materials purchases ($220,000 + $72,000) 292,000
Total raw materials available for use 368,000
Less: Raw materials inventory, March 31 85,000
Direct materials used during March $283,000

Note: Payment on account to Pine is irrelevant to the direct materials used calculation.

Ex. 187
Presented below are incomplete 2008 manufacturing cost data for Tardy Corporation.

Direct Materials Factory Total Manufacturing

Used Direct Labor Overhead Costs
(a) $36,000 $72,000 $54,000 ?
(b) ? $53,000 $90,000 $272,000
(c) $53,000 ? $101,000 $290,000

Instructions
Determine the missing amounts.

Solution 187 (5 min.)

Direct Materials Factory Total Manufacturing
Used Direct Labor Overhead Costs
(a) $36,000 $72,000 $54,000 $162,000
(b) $129,000 $53,000 $90,000 $272,000
(c) $53,000 $136,000 $101,000 $290,000
1 - 20 Test Bank for ISV Managerial Accounting, Fourth Edition

Ex. 188
Indicate whether each of the following would appear on the:
A—Cost of goods manufactured schedule
B—Income statement
C—Balance sheet
Note: If it would appear in more than just one, indicate which ones.

______ 1. Cost of goods sold

______ 2. Finished goods inventory, 12/31

______ 3. Direct materials used

______ 4. Raw materials inventory, 1/1

______ 5. Insurance on factory equipment

______ 6. Work in process, 12/31

______ 7. Indirect labor

______ 8. Property taxes on office building

Solution 188 (5 min.)

1. B 5. A
2. B, C 6. A, C
3. A 7. A
4. A 8. B

Ex. 189
Listed below are current asset items for Klugman Company at December 31, 2008.

Finished goods inventory $35,000 Short-term investments $28,000

Cash 20,000 Raw materials inventory 12,000
Prepaid expenses 2,000 Work in process inventory 18,000
Accounts receivable 4,000 Supplies 500

Instructions
Prepare the current assets section of the balance sheet. (Include a complete heading.)
 Managerial Accounting 1 - 21

Solution 189 (6–9 min.)

KLUGMAN COMPANY
(Partial) Balance Sheet
December 31, 2008
Current assets
Cash $20,000
Short-term investments 28,000
Accounts receivable 4,000
Inventories:
Finished goods $35,000
Work in process 18,000
Raw materials 12,000 65,000
Prepaid expenses 2,000
Supplies 500
Total current assets $119,500
1 - 22 Test Bank for ISV Managerial Accounting, Fourth Edition

COMPLETION STATEMENTS
190. Financial accounting information is prepared mainly for ______________ users, while
managerial accounting information is prepared primarily for ______________ users.

191. The types of reports prepared in managerial accounting are often ______________-
purpose reports prepared for a specific decision.

192. Managerial accounting reports generally pertain to ______________ of a business and

may be very detailed.

193. Three broad managerial functions are: (1)______________, (2)______________, and

(3)______________.

194. The ______________ function is concerned with setting goals and objectives for the
entity.

195. Exercising good judgment in performing the managerial functions and choosing among
alternative courses of action is called ______________.

196. The three cost elements in manufacturing a product are (1)______________,

(2)______________, and (3)______________.

197. The work of factory employees that can be physically and directly associated with
converting raw materials into products is classified as ______________.

198. Indirect materials and indirect labor are classified as ______________.

199. Each of the manufacturing cost components is a ______________ cost.

200. A major difference between the income statements of a merchandising company and a
manufacturing company is that the cost of goods sold section of a merchandising
company shows cost of goods______________, whereas a manufacturing company
shows cost of goods ______________.

201. ___________________ is added to direct labor and manufacturing overhead to get total
manufacturing costs for the current period.

202. The ending work in process inventory is subtracted from the total cost of work in process
to calculate ______________________.

203. A manufacturing company computes cost of goods sold by adding cost of goods
manufactured to the ___________________ and subtracting the __________________.

204. A manufacturing company usually has three inventory accounts which are
(1)___________________, (2)___________________, and (3)___________________.
 Managerial Accounting 1 - 23

Answers to Completion Statements

190. external, internal
191. special
192. subunits
193. planning, directing, controlling
194. planning
195. decision making
196. direct materials, direct labor, manufacturing overhead
197. direct labor
198. manufacturing overhead
199. product
200. purchased, manufactured
201. Direct materials used
202. cost of goods manufactured
203. beginning finished goods inventory, ending finished goods inventory
204. Finished Goods Inventory, Work in Process Inventory, Raw Materials Inventory

MATCHING
205. Match the items in the two columns below by entering the appropriate code letter in the
space provided.

A. Managerial accounting F. Work in process inventory

B. Financial accounting G. Direct materials
C. Planning H. Manufacturing overhead
D. Directing I. Period costs
E. Controlling J. Value chain

_____ 1. The cost of products that are partially complete.

_____ 2. The function of keeping activities in accordance with plans.

_____ 3. Primarily concerned with internal users and reports pertain to subunits of the entity.

_____ 4. Materials that can be physically and directly associated with manufacturing a
product.

_____ 5. The function of setting goals and objectives.

_____ 6. Indirect costs of manufacturing a product.

_____ 7. Primarily concerned with external users and reports pertain to the entity as a whole.

_____ 8. Costs that are noninventoriable.

_____ 9. All activities associated with providing a product or service.

_____ 10. The function of coordinating diverse activities to produce a smooth-running

operation.
1 - 24 Test Bank for ISV Managerial Accounting, Fourth Edition

Answers to Matching

1. F 6. H
2. E 7. B
3. A 8. I
4. G 9. J
5. C 10. D

SHORT-ANSWER ESSAY QUESTIONS

S-A E 206
Financial and managerial accounting are both concerned with the economic events of an
enterprise. Similarities between financial and managerial accounting do exist, but they do have
different focus. Briefly distinguish between financial and managerial accounting as they relate to
(1) the primary users, (2) the type and frequency of reports, (3) the purpose of reports, and (4) the
content of reports.

Solution 206
Financial accounting is primarily concerned with external users such as stockholders and
creditors, while the primary users of managerial accounting are those within the company
(internal users) such as officers, managers, supervisors, etc. Quarterly and annual classified
financial statements are the end product of financial accounting. Internal reports, prepared as
often as needed are the result of managerial accounting. The financial statements produced by
financial accounting are general-purpose reports which are highly aggregated, pertain to the
enterprise as a whole, and are constrained by generally accepted accounting principles. The
internal reports prepared by management accountants are special purpose reports which are
detailed, pertain to subunits of the enterprise, and may contain any information relevant to the
decision at hand.

S-A E 207
A manufacturing company makes the products that it sells. Briefly identify and define the cost
elements that are incurred in making a product. After product cost elements are identified, how is
the cost of goods manufactured for a period determined?

Solution 207
Costs incurred to manufacture a product include direct materials which can be physically and
directly associated with the finished product; direct labor, which is the work of factory employees
which can be physically and directly associated with the finished product; and manufacturing
overhead, those manufacturing costs which are indirectly associated with production of the
finished product. Cost of goods manufactured is computed by adding the cost of direct materials
used, direct labor, and manufacturing overhead to the beginning work in process, and subtracting
the ending work in process.
 Managerial Accounting 1 - 25

S-A E 208
Assume you have just taken a position as controller for a new company that manufactures and
sells wrought iron wall hangings. Although the founder of the company, who is the president and
CEO, is a great artisan, she has very limited knowledge of accounting.

Instructions
To help your new boss better understand accounting for a manufacturing organization, prepare a
response to her in which you: (1) identify, (2) describe, and (3) provide examples of the three
manufacturing costs and the three inventory accounts used in accounting for a manufacturing
company.

Solution 208
The three manufacturing costs are: direct materials, direct labor, and manufacturing overhead.
Raw materials that can be physically and directly associated with the finished product during the
manufacturing process are called direct materials. The iron used in making the wall hangings is
an example of direct materials. The work of factory employees that can be physically and directly
associated with converting raw materials to finished goods is considered direct labor.
Manufacturing overhead consists of costs that are indirectly associated with the manufacture of
the finished product. These costs may also be manufacturing costs that cannot be classified as
direct materials or direct labor. Manufacturing overhead includes indirect materials, indirect labor,
and depreciation on factory buildings, and machinery, utilities, insurance, taxes and maintenance
on factory facilities.

The three inventory accounts are: raw materials, work in process, and finished goods. Raw
materials inventory represents the cost of the materials and parts that are to be used in the
manufacturing process. The iron purchased to make the wall hangings would be considered raw
materials until the time it was put into production. Work in process is the cost applicable to units
that have been started into production but are only partially complete. Wall hangings on the
assembly line that are in various stages of completion would be work in process. The finished
goods inventory represents the cost of completed goods that have not been sold. The cost of wall
hangings that are completed but have not been sold would be finished goods.

S-A E 209 (Ethics)

Million Dollar Mills is a textile manufacturing firm located in the southern United States. The
company carefully prepares all financial statements in accordance with GAAP, and gives a copy
of all financial statements to each department. In addition, the company keeps records on quality
control, safety, and environmental pollution by the company. It then prepares "scorecards" for
each department indicating their performance. Recently, the financial impact of the second set of
information was added, and the information has been used in the evaluation of employees for
merit pay and promotions.

At the most recent employee meeting, Tyler Hanes, marketing manager, expressed his
discomfort with the system. He said there was no guarantee that the second set of information
was fair, since there were no generally accepted principles for this kind of information. He also
said that it was kind of like keeping two sets of books—one following all legal requirements, and
the other one actually used by the company.
1 - 26 Test Bank for ISV Managerial Accounting, Fourth Edition

S-A E 209 (cont.)

Required:
1. Is it ethical to evaluate managers in the way described? Explain briefly.
2. Name at least two safeguards the company could build into its system to ensure the ethical
treatment of employees.

Solution 209
1. It is ethical for a company to use all available data in order to evaluate managers, and even to
collect data not routinely available. In fact, such a method seems preferable to one in which
the company may only use specified financial data in its evaluation of a manager's
performance. It does not imply a departure from GAAP, nor that the company does not
actually use the information prepared according to GAAP. It supplements the standard
reports, it does not replace them.

2. The company should make certain that the appropriate information is calculated in the same
way each period. All the relevant data should be collected and reported each period. New
data should be limited. The qualitative information should be complemented, not replaced, by
the regular financial information.

S-A E 210 (Communication)

Volumetrica, a producer of audio equipment for large computer systems, is reviewing its policies
as part of a biannual self-examination of the company. As part of this process, all managers have
been asked to carefully examine costs and determine as closely as possible which costs are
direct and which are indirect.

Marie Ramsey and Dan Wilson, managers of different manufacturing departments in the same
building, have been working together. They found the following four costs that could be
economically traced to the products, but have historically been a part of overhead:
• Cost of setting up the machinery for a different production run.
• Cost of minor assembly components such as knobs and switches.
• Cost of packaging, which is quite different for each model.
• Cost of inspecting and testing each model.

None of the costs is significant by itself, but together these four costs make up between 10 and
15% of the total cost of the product. Marie favors "leaving well enough alone," as she puts it, and
leaving these costs in overhead. She is afraid that her volunteering to trace these costs will result
in her having to trace many more costs in the future. Dan, on the other hand, prefers to have the
product cost as accurate as possible. He points out that these costs are already known, and the
process would require little extra work.

Required:
You have been called on in your function as accounting manager to resolve the dispute. Write a
memo to Marie and Dan, supporting one or the other position. Be sure to adequately defend your
position, but be brief.
 Managerial Accounting 1 - 27

Solution 210

TO: Marie Ramsey and Dan Wilson

FROM: Nancy West, Accounting Manager

RE: Tracing overhead

I strongly support the tracing of as much of what is now overhead directly to the
products as possible (sorry, Marie). Besides giving more accurate product costs
now, as Dan says, it will help us considerably in the future. We can evaluate
products better, the more we know about which costs they generate. Otherwise,
we just assign them some amount of overhead, which may be either more or less
than they actually cost.

Thank you both for your hard work. It is true, as Marie says, that our reviews will
(temporarily) cause us more work (sorry, Dan). However, I think you'll both agree
that the benefits of knowing the costs of our products better will make the effort
well worthwhile.

So, let's start tracing the four costs you mentioned now. Once we have the glitches
ironed out, we'll share the results with the other departments.

(signed)