View
306
Download
1
Category
Preview:
DESCRIPTION
solution to chap 1 cost accounting
Citation preview
CHAPTER 16
MANAGEMENT ACCOUNTING: A BUSINESS PARTNER
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 23
SOLUTIONS TO EXERCISES
Ex. 16–1 a. Management accountingb. Manufacturing overheadc. None (These are prime costs.)d. None (The statement describes direct manufacturing costs.)e. Work in Process Inventoryf. Cost of finished goods manufacturedg. Period costs
Ex. 16–2 a. Direct materialsb. Either direct labor or manufacturing overhead (If every automobile produced is sub-
ject to the same testing before it is released to dealers, this cost is an element of direct labor. If testing is on a sample basis, it might be appropriate to consider this a part of manufacturing overhead.)
c. Manufacturing overheadd. Direct materialse. Direct laborf. Manufacturing overheadg. Manufacturing overheadh. Manufacturing overhead
Ex. 16–3 a. Indirect product costb. Direct product costc. Period costd. Period coste. Indirect product costf. Period costg. Indirect product costh. Period cost
Ex. 16–4 Work in process inventory, beginning of the year................................................... $ 35,000Manufacturing costs applied to production:
Direct materials used........................................................................... $245,000Direct labor.......................................................................................... 120,000Manufacturing overhead.................................................................... 300,000
Total manufacturing costs.................................................................................. 665,000 Total cost of all goods in process during the year.................................................... $700,000Less: Cost of finished goods manufactured.............................................................. 675,000 Work in process inventory, end of the year.............................................................. $ 25,000
24 © The McGraw-Hill Companies, Inc., 2005
Ex. 16–5 a. NuTronics, Inc.Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31, 2005
Work in process, January 1, 2005....................................................................... $ 12,000Manufacturing costs assigned to production:
Direct materials used.................................................................... $210,000Direct labor.................................................................................... 120,000Manufacturing overhead.............................................................. 192,000
Total manufacturing costs........................................................................... 522,000 Total cost of all goods in process during the year.............................................. $534,000Less: Work in process inventory, December 31, 2005....................................... 8,000 Cost of finished goods manufactured.................................................................. $ 526,000
b. $26.30 per unit ($526,000 cost of finished goods manufactured, divided by 20,000 units)
Ex. 16–6 a. Direct materials inventory, Jan. 1....................................................................... $ 8,700Direct materials purchased.............................................................................. 25,750Less: Direct materials used in production...................................................... (26,000 )
Direct materials inventory, Jan. 31..................................................................... $ 8,450
Work in process inventory, Jan. 1....................................................................... $ 76,500Direct materials used........................................................................................ 26,000Direct labor used............................................................................................... 42,000Manufacturing overhead applied.................................................................... 32,400Less: Finished goods transferred out.............................................................. (69,000 )
Work in process inventory, Jan. 31..................................................................... $107,900
Finished goods inventory, Jan. 1......................................................................... $ 53,000Cost of finished goods transferred in.............................................................. 69,000Less: Cost of goods sold.................................................................................... (89,000)
Finished goods inventory, Jan. 31....................................................................... $ 33,000
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 25
b. Manufacturing overhead, Jan. 1......................................................................... $ 0Indirect materials purchased........................................................................... 3,500Supervisor salaries............................................................................................ 12,000Indirect labor costs........................................................................................... 3,000Depreciation...................................................................................................... 4,500Factory utilities................................................................................................. 7,800Factory insurance............................................................................................. 4,200Property taxes on factory................................................................................. 3,000Less: Manufacturing overhead applied.......................................................... (32,400)
Manufacturing overhead, Jan. 31....................................................................... $ 5,600
c. Operating income for the month of January:Revenues............................................................................................................ $165,000
Cost of goods sold............................................................................................. (89,000)
Gross profit....................................................................................................... 76,000
Operating expenses:
Sales commissions..................................................................... $16,500Advertising expense.................................................................. 6,300 (22,800)
Operating income................................................................................................. $ 53,200
Ex. 16–7 The answer to this question depends upon one’s interpretation of the word “manipulate.” It is common practice to manipulate managerial reports in order to make them more useful for decision making purposes. However, if reports are manipulated in order to change their underlying meaning (e.g., for personal gain or to exploit others), such behav-ior is unethical.
26 © The McGraw-Hill Companies, Inc., 2005
SOLUTIONS TO PROBLEMS
20 Minutes, Easy PROBLEM 16–1
AQUA-MARINE
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 27
28 © The McGraw-Hill Companies, Inc., 2005
PROBLEM 16–1
AQUA-MARINE (concluded)
b. Comments on deducting manufacturing costs from revenue:
No—the entire $775,000 in manufacturing costs is not deducted from the revenue of the current year. Manufacturing costs are product costs, not period costs. Product costs are viewed as the cost of creating inventory, not as “expenses” of the current period. If the inventory remains on hand at the end of the period, the product costs appear in the balance sheet as the cost of this inventory. When the units are sold, the product costs are deducted from the related sales revenue as the cost of goods sold. This accomplishes the objective of “matching” revenue with the related costs and expenses of generating that revenue.
The disposition of the $775,000 in manufacturing costs “incurred” during the year is summarized below:
Total manufacturing costs “incurred” during the year........................................................ $775,000Less: Amounts representing inventory at year-end:
Materials inventory.......................................................................................... $ 9,000Work in process inventory............................................................................... 38,000Finished goods inventory................................................................................. 78,000 125,000
Manufacturing costs deducted from revenue (cost of goods sold)....................................... $ 650,000
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 29
15 Minutes, Easy PROBLEM 16–2
ROAD RANGER CORPORATION
30 © The McGraw-Hill Companies, Inc., 2005
20 Minutes, Easy PROBLEM 16–3
SUPERIOR LOCKS, INC.
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 31
20 Minutes, Easy PROBLEM 16–4
GRONBACK CORPORATION
32 © The McGraw-Hill Companies, Inc., 2005
35 Minutes, Medium PROBLEM 16–5
HILLSDALE MANUFACTURING
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 33
PROBLEM 16–5
HILLSDALE MANUFACTURING (concluded)
34 © The McGraw-Hill Companies, Inc., 2005
35 Minutes, Strong PROBLEM 16–6
TOLEDO TOY CO.
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 35
PROBLEM 16–6
TOLEDO TOY CO. (concluded)
e. Direct labor is a product cost, and therefore, it becomes “attached” to the products manufactured. To the extent that units manufactured during 2005 were sold in that year, the direct labor costs incurred in manufacturing those units comprise part of the cost of goods sold. To the extent that manufactured units remain on hand, either as work in process or as finished goods, the direct labor costs represent part of the cost of this inventory.
36 © The McGraw-Hill Companies, Inc., 2005
35 Minutes, Medium PROBLEM 16–7
NEVIS TOOLS
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 37
PROBLEM 16–7
NEVIS TOOLS (concluded)
38 © The McGraw-Hill Companies, Inc., 2005
25 Minutes, Medium PROBLEM 16–8
IDAHO PAPER COMPANY
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 39
15 Minutes, Easy PROBLEM 16–9
MAYVILLE COMPANY
40 © The McGraw-Hill Companies, Inc., 2005
15 Minutes, Easy PROBLEM 16–10
RIDGEWAY COMPANY
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 41
40 Minutes, Strong PROBLEM 16–11
RAYMOND ENGINEERING CO.
42 © The McGraw-Hill Companies, Inc., 2005
PROBLEM 16–11
RAYMOND ENGINEERING CO. (concluded)
d. Evaluation of Raymond’s conclusions:
Raymond is in error both about the $66.36 unit cost of production and about the overall unprofitability of the business. In concluding that the business sustained a net loss, Raymond treated product costs as if they were period costs to be offset against the revenue of the year. Actually, a total of $166,000 of the product costs incurred should be assigned to the ending inventories of materials ($46,000), work in process ($31,500), and finished goods ($88,500). The costs associated with these ending inventories are assets at year-end, not expenses of the period. Raymond’s erroneous calculation of a net loss may be reconciled to the actual net income of the business as follows:
Net loss calculated by Raymond............................................................................................. $ (53,000)Add: Product costs erroneously deducted as expense........................................................... 166,000 Actual operating income.......................................................................................................... $113,000Less: Income taxes (ignored by Raymond)............................................................................ 33,900 Actual net income (see part c)................................................................................................. $ 79,100
Raymond has made three errors in computing the cost of production. First, he included selling and administrative expenses in his calculations. These costs do not relate to the manufacturing process and, therefore, are not part of the cost to manufacture the valves. Second, included in Raymond’s total costs of $663,600 are $77,500 applicable to the ending inventories of materials ($46,000) and of work in process ($31,500). Since these costs do not relate to goods completed during the year, they should not be included in the unit cost of finished goods. Third, Raymond divided his total cost figure by only the 10,000 units sold during the period, rather than by the 13,000 finished units manufactured (10,000 units sold + 3,000 finished units in inventory). The correct average unit cost of finished goods manufactured is $29.50, as computed in part b. This amount compares very favorably with competitors’ manufacturing costs of approximately $35 per unit.
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 43
40 Minutes, Strong PROBLEM 16–12
WEST TEXAS GUITAR COMPANY
a. The errors and shortcomings in the illustrated income statement include the following:
(1) All manufacturing costs incurred during the first year of operations have incorrectly been included in the cost of goods sold. The portions of these costs that are applicable to the ending inventories of materials, work in process, and finished goods are assets at year-end and should not be deducted from the revenue of this first year.
(2) Dividends declared on common stock have been offset against revenue in measuring net income. Dividends are not an expense and do not enter into the computation of net income or net loss.
(3) Period expenses are improperly included in the cost of goods sold. As a result, the cost of goods sold is improperly determined and the income statement does not disclose important subtotals, such as gross profit, total operating expenses, and operating income.
As a result of deduction from revenue of dividends declared and of manufacturing costs relating to ending inventories of raw materials, goods in process, and finished goods, it is reasonable to conclude that the company’s actual net income is higher than the amount shown in the income statement.
44 © The McGraw-Hill Companies, Inc., 2005
PROBLEM 16–12
WEST TEXAS GUITAR COMPANY (concluded)
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 45
Recommended