ACCOUNTING

SHORT EXERCISES

Managerial Accounting versus Financial Accounting

SE1. Indicate whether each of the following characteristics relates to managerial account-ing (MA) or financial accounting (FA):

a. Forward looking

b. Publicly reported

c. Complies with accounting standards

d. Usually confidentiale. Reports past performance

f. Uses physical measures as well as monetary ones for reports

g. Driven by user needs

h. Focuses on business decision making

Elements of Manufacturing Costs

SE2. CONCEPT

▶ Stoney Saure, accountant for Votives, Inc., must group the costs of manufacturing tealights. Indicate whether each of the following items should be clas-sified as direct materials (DM), direct labor (DL), overhead (O), or none of these (N). Also indicate whether each is a prime cost (PC), a conversion cost (CC), or neither (N). ( Hint: More than one answer per category may apply.)

a. Cost of wax

b. Depreciation of the cost of vats to hold melted wax

c. Cost of Gigi’s time to dip the wicks into the wax

d. Rent on the factory where candles are madee. Cost of coloring for candles

f. Steve’s commission to sell candles to Brightlights, Inc.

g. Cost of Ramos’s time to design candles for Halloween

Document Flows in a Manufacturing Organization

SE5. Identify the document needed to support each of the following activities in a manu-facturing organization:

a. Recording direct labor time at the beginning and end of each work shift

b. Placing an order for direct materials with a supplier

c. Receiving direct materials at the shipping dock

d. Recording the costs of a specific job’s direct materials, direct labor, and overhead

e. Issuing direct materials into production

f. Fulfilling a Production Department request for the purchase of direct materials

g. Billing the customer for a completed order Income Statement for a Manufacturing Organization

SE6. Using the following information from Nathan Company, prepare an income state-ment through operating income for the year:

Sales $900,000

Finished goods inventory, beginning 45,000

Cost of goods manufactured 575,000

Finished goods inventory, ending 80,000

Operating expenses 300,000

Ethical Conduct

SE10. BUSINESS APPLICATION

▶ ABC Cosmetics Company’s managerial accountant has lunch every day with his friend who is a managerial accountant for XYZ Cosmet-ics, Inc., a competitor of ABC. Last week, ABC’s accountant couldn’t decide how to treat some information in a report he was preparing, so he discussed it with his friend. Is ABC’s accountant adhering to the ethical standards of management accountants? Defend your answer.

A Manufacturing Organization’s Balance Sheet

P1. The information that follows is from Manufacturing Company’s trial balance.

Debits Credits

Cash 34,000

Accounts Receivable 27,000

Materials Inventory, ending 31,000

Work in Process Inventory, ending 47,900

Finished Goods Inventory, ending 54,800

Factory Supplies 5,700

Small Tools 9,330

Land 160,000

Factory Building 575,000

Accumulated Depreciation—Factory Building 199,000

Factory Equipment 310,000

Accumulated Depreciation—Factory Equipment 137,000

Patents 33,500

Accounts Payable 26,900

Insurance Premiums Payable 6,700

Income Taxes Payable 41,500

Mortgage Payable 343,000

Common Stock 200,000

Retained Earnings ______________ 334,130

1,288,230 1,288,230

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REQUIRED 1. Manufacturing organizations use asset accounts that are not needed by retail organizations.

a. List the titles of the asset accounts that are specifically related to manufacturing organizations.

b. List the titles of the asset, liability, and equity accounts that you would see on the balance sheets of both manufacturing and retail organizations.

2. Assuming that the following information reflects the results of operations for the year, calculate the (a) gross margin,

(b) cost of goods sold,

(c) cost of goods available for sale, and

(d) cost of goods manufactured:

Operating income $138,130

Operating expenses 53,670

Sales 500,000

Finished goods inventory, beginning 50,900

Finished goods inventory, ending 54,800

Computation of Unit Cost

P3. Keep Cool Industries, Inc., manufactures fans for personal use. Department 70 is responsible for assembling the fan. Department 71 packages them for shipment. Keep Cool recently produced 10,000 fans for a national retailer. In fulfilling this order, the departments incurred the following costs:

Department 70 71

Direct materials used $30,000 $4,000

Direct labor 8,000 2,000

Overhead 5,000 3,000

1. Compute the unit cost for each department.

2. Compute the total unit cost for the national retailer order.

3. ACCOUNTING CONNECTION ▶ The selling price for this order was $10 per unit. Was the selling price adequate? List the assumptions and/or computations upon which you based your answer. What suggestions would you make to Keep Cool’s management about the pricing of future orders?

4. Compute the prime costs and conversion costs per unit for each department.

A Manufacturing Organization’s Balance Sheet

P6. The information that follows is from Miles Production Company’s trial balance.

Debits Credits

Cash 40,000

Accounts Receivable 30,000

Materials Inventory, ending 41,000

Work in Process Inventory, ending 37,000

Finished Goods Inventory, ending 70,000

Production Supplies 5,000

Small Tools 3,000

Land 200,000

Factory Building 600,000

Accumulated Depreciation—Factory Building 300,000

Production Equipment 210,000

Accumulated Depreciation—Production Equipment 100,000

Patents 20,000

Accounts Payable 40,000

Insurance Premiums Payable 6,000

Income Taxes Payable 40,000

Mortgage Payable 400,000

Common Stock 300,000

Retained Earnings 70,000

1,256,000 1,256,000

REQUIRED

1. Manufacturing organizations use asset accounts that are not needed by retail organizations.

a. List the titles of the asset accounts that are specifically related to manufacturing organizations.

b. List the titles of the asset, liability, and equity accounts that you would see on the balance sheets of both manufacturing and retail organizations.

2. Assuming that the following information reflects the results of operations for the year, calculate the (a) gross margin, (b) cost of goods sold, (c) cost of goods avail-able for sale, and (d) cost of goods manufactured:

Operating income $ 68,000

Operating expenses 40,000

Sales 450,000

Finished goods inventory, beginning 60,000

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