CHAPTER 14

MANAGERIAL ACCOUNTING

CHAPTER LEARNING OBJECTIVES

1. Identify the features of managerial accounting and the functions of management. The primary users of managerial accounting reports, issued as frequently as needed, are internal users, who are officers, department heads, managers, and supervisors in the company. The purpose of these reports is to provide special-purpose information for a particular user for a specific decision. The content of managerial accounting reports pertains to subunits of the business. It may be very detailed, and may extend beyond the accrual accounting system. The reporting standard is relevance to the decision being made. No independent audits are required in managerial accounting.

The functions of management are planning, directing, and controlling. Planning requires management to look ahead and to establish objectives. Directing involves coordinating the diverse activities and human resources of a company to produce a smooth-running operation. Controlling is the process of keeping the activities on track.

1. Describe the classes of manufacturing costs and the differences between product and period costs. Manufacturing costs are typically classified as either (1) direct materials, (2) direct labor, or (3) manufacturing overhead. Raw materials that can be physically and directly associated with the finished product during the manufacturing process are called direct materials. The work of factory employees that can be physically and directly associated with converting raw materials into finished goods is considered direct labor. Manufacturing overhead consists of costs that are indirectly associated with the manufacture of the finished product. Manufacturing costs are typically incurred at the manufacturing facility.

Product costs are costs that are a necessary and integral part of producing the finished product. Product costs are also called inventoriable costs. These costs do not become expenses until the company sells the finished goods inventory.

Period costs are costs that are identified with a specific time period rather than with a salable product. These costs relate to nonmanufacturing costs and therefore are not inventoriable costs. They are expensed as incurred.

1. Demonstrate how to compute cost of goods manufactured and prepare financial statements for a manufacturer. Companies add the cost of the beginning work in process inventory to the total manufacturing costs for the current year to arrive at the total cost of work in process for the year. They then subtract the ending work in process inventory from the total cost of work in process to arrive at the cost of goods manufactured.

The difference between a merchandising and a manufacturing balance sheet is in the current assets section. The current assets section of a manufacturing company's balance sheet presents three inventory accounts: finished goods inventory, work in process inventory, and raw materials inventory.

The difference between a merchandising and a manufacturing income statement is in the cost of goods sold section. A manufacturing cost of goods sold section shows beginning and ending finished goods inventories and the cost of goods manufactured.

4 Discuss trends in managerial accounting. Managerial accounting has experienced many changes in recent years, including a shift toward service companies as well as emphasis on ethical behavior. Improved practices include a focus on managing the value chain through techniques such as just-in-time inventory, total quality management, activity-based costing, and theory of constraints. The balanced scorecard is now used by many companies in order to attain a more comprehensive view of the company's operations, and companies are now evaluating their performance with regard to their corporate social responsibility. Finally, data analytics and data visualizations are important tools that help businesses identify problems and opportunities, and then make informed decisions

TRUE-FALSE STATEMENTS

1. Reports prepared in financial accounting are general-purpose reports while reports prepared in managerial accounting are usually special-purpose reports.

2. Managerial accounting information generally pertains to an entity as a whole and is highly aggregated.

3. All forms of business organizations need managerial accounting information.

4. Determining the unit cost of manufacturing a product is an output of financial accounting.

5. Managerial accounting internal reports are prepared more frequently than financial statements that are distributed externally.

6. The management function of organizing and directing is mainly concerned with setting goals and objectives for the entity.

7. The controller of a company is responsible for all of the accounting and finance issues a company faces.

8. Controlling is the process of determining whether planned goals are being met.

9. Decision-making is an integral part of the planning, directing, and controlling functions.

10. Direct materials costs and indirect materials costs are both included in manufacturing overhead.

11. Manufacturing costs that cannot be classified as direct materials or direct labor are classified as manufacturing overhead.

12. The balance in the raw materials inventory account is equal to total direct materials minus total indirect materials.

13. Raw materials that can be conveniently and directly associated with a finished product are called materials overhead.

14. The total cost of a finished product does not generally include equal amounts of materials, labor, and overhead costs.

15. Both direct labor cost and indirect labor cost are product costs.

16. Period costs include selling and administrative expenses.

17. Indirect materials and indirect labor are both inventoriable costs.

18. Direct materials and direct labor are the only product costs.

19. Total period costs are deducted from total cost of work in process to calculate cost of goods manufactured.

20. Period costs are not inventoriable costs.

21. Ending finished goods inventory appears on both the balance sheet and the income statement of a manufacturing company.

22. The beginning work in process inventory appears on both the balance sheet and the cost of goods manufactured schedule of a manufacturing company.

23. In calculating gross profit for a manufacturing company, the cost of goods manufactured is deducted from net sales.

24. Finished goods inventory does not appear on a cost of goods manufactured schedule.

25. If ending work in process inventory is greater than beginning work in process inventory, then cost of goods manufactured will be less than total manufacturing costs for the period.

26. The finished goods inventory account for a manufacturing company is equivalent to the inventory account for a merchandising company.

27. Raw materials inventory shows the cost of completed goods available for sale to customers.

28. The balanced scorecard approach attempts to maintain minimal inventories on hand.

29. The supply chain is all the activities associated with providing a product or service.

30. Many companies have significantly lowered inventory levels and costs using just-in-time inventory methods.

31. Managerial accounting is primarily concerned with managers and external users.

32. Planning involves coordinating the diverse activities and human resources of a company to produce a smoothly running operation.

33. When the physical association of raw materials with the finished product is too difficult to trace, these costs are usually classified as indirect materials.

34. Product costs are also called inventoriable costs.

35. Direct materials become a cost of goods manufactured when these items are acquired, not when the items are used.

36. The sum of the direct materials costs, direct labor costs, and the beginning work in process inventory is the total manufacturing costs for the year.

37. In a manufacturing company balance sheet, manufacturing inventories are reported in the current assets section in the order of their expected use in production.

MULTIPLE CHOICE QUESTIONS

38. Managerial accounting is used in each of the following types of businesses except

a. service firms.

b. merchandising firms.

c. manufacturing firms.

d. Managerial accounting is used in all types of firms.

39. Managerial accounting information is generally prepared for

a. stockholders.

b. creditors.

c. managers.

d. regulatory agencies.

40. Managerial accounting information

a. pertains to the entity as a whole and is highly aggregated.

b. pertains to subunits of the entity and may be very detailed.

c. is prepared only once a year.

d. is constrained by the requirements of generally accepted accounting principles.

41. The major reporting standard for presenting managerial accounting information is

a. relevance.

b. generally accepted accounting principles.

c. the cost principle.

d. the current tax laws.

42. Managerial accounting is also called

a. management accounting.

b. controlling.

c. analytical accounting.

d. inside reporting.

43. Which of the following is not an internal user?

a. Creditor

b. Department manager

c. Controller

d. Treasurer

44. Managerial accounting does not encompass

a. calculating product cost.

b. calculating earnings per share.

c. determining cost behavior.

d. profit planning.

45. Managerial accounting is applicable to

a. service entities.

b. manufacturing entities.

c. not-for-profit entities.

d. all of these.

46. Management accountants would not

a. assist in budget planning.

b. prepare reports primarily for external users.

c. determine cost behavior.

d. be concerned with the impact of cost and volume on profits.

47. Internal reports are prepared and distributed

a. daily.

b. monthly.

c. annually.

d. as needed.

48. Financial statements for external users can be described as

a. user-specific.

b. general-purpose.

c. special-purpose.

d. managerial reports.

49. Managerial accounting reports can be described as

a. general-purpose.

b. macro-reports.

c. special-purpose.

d. classified financial statements.

50. Which of the following statements about internal reports is not true?

a. The content of internal reports may extend beyond the accrual accounting system.

b. Internal reports may show all amounts at market values.

c. Internal reports may discuss prospective events.

d. Internal reports are generally highly summarized rather than detailed.

51. While the preparation of financial statements for external users is guided by GAAP, the guideline for the preparation of managerial accounting reports for internal users is

a. timeliness.

b. special-purpose.

c. relevance to decision.

d. aggregation.

52. Internal managerial accounting reports are generally

a. aggregated.

b. detailed.

c. regulated.

d. unreliable.

53. A distinguishing feature of managerial accounting is that

a. it is prepared for external users.

b. it produces general-purpose reports.

c. it generally results in very detailed reports.

d. it publishes quarterly and annual reports.

54. What activities and responsibilities are not associated with managerial functions?

a. Planning

b. Accountability

c. Controlling

d. Directing

55. Planning is a function that involves

a. hiring the right people for a particular job.

b. coordinating the accounting information system.

c. setting goals and objectives for an entity.

d. analyzing financial statements.

56. The managerial function of controlling

a. is performed only by the controller of a company.

b. is only applicable when the company sustains a loss.

c. is concerned mainly with operating a manufacturing segment.

d. includes performance evaluation by management.

57. Which of the following is not a management function?

a. Constraining

b. Planning

c. Controlling

d. Directing

58. A manager that is establishing objectives is performing which management function?

a. Controlling

b. Directing

c. Planning

d. Constraining

59. The management function that requires managers to look ahead and establish objectives is

a. controlling.

b. directing.

c. planning.

d. constraining.

60. In determining whether planned goals are being met, a manager is performing the function of

a. planning.

b. follow-up.

c. directing.

d. controlling.

61. Which of the following is not a separate management function?

a. Planning

b. Directing

c. Decision-making

d. Controlling

62. Directing includes

a. providing a framework for management to have criteria to terminate employees when needed.

b. running a department under quality control standards universally accepted.

c. coordinating a company's diverse activities and human resources to produce a smooth-running operation.

d. developing a complex performance ranking system to give certain high performers good raises.

63. Both direct materials and indirect materials are

a. raw materials.

b. manufacturing overhead.

c. merchandise inventory.

d. sold directly to customers by a manufacturing company.

64. The work of factory employees that can be physically and directly associated with converting raw materials into finished goods is

a. manufacturing overhead.

b. indirect materials.

c. indirect labor.

d. direct labor.

65. Which one of the following would not be classified as manufacturing overhead?

a. Indirect labor

b. Direct materials

c. Insurance on factory building

d. Indirect materials

66. Manufacturing costs include

a. direct materials and direct labor only.

b. direct materials and manufacturing overhead only.

c. direct labor and manufacturing overhead only.

d. direct materials, direct labor, and manufacturing overhead.

67. Which one of the following is not a direct material?

a. A tire used for a lawn mower

b. Plastic used in the covered case for an iPhone

c. Steel used in the manufacturing of steel-radial tires

d. Lubricant for a ball-bearing joint for a large crane

68. Which one of the following is not a cost element in manufacturing a product?

a. Manufacturing overhead

b. Direct materials

c. Office salaries

d. Direct labor

69. A manufacturing process requires small amounts of glue. The glue used in the production process is classified as a(n)

a. period cost.

b. indirect material.

c. direct material.

d. miscellaneous expense.

70. The wages of a janitor in the factory would be classified as

a. a period cost.

b. direct labor.

c. indirect labor.

d. compliance costs.

71. Which one of the following is not considered a raw material costs?

a. Partially completed motor engines for a motorcycle factory

b. Bolts used in manufacturing the compressor of an engine

c. Rivets for the wings of a new commercial jet aircraft

d. Lumber used to build tables

72. Which of the following is not a manufacturing cost category?

a. Cost of goods sold

b. Direct materials

c. Direct labor

d. Manufacturing overhead

73. As technology changes manufacturing processes, it is likely that direct

a. labor will increase.

b. labor will decrease.

c. materials will increase.

d. materials will decrease.

74. For the work of factory employees to be considered as direct labor, the work must be conveniently and

a. materially associated with raw materials conversion.

b. periodically associated with raw materials conversion.

c. physically associated with raw materials conversion.

d. promptly associated with raw materials conversion.

75. Which of the following is not classified as direct labor?

a. Bottlers of beer in a brewery

b. Copy machine operators at a copy shop

c. Wages of supervisors

d. Bakers in a bakery

76. Cotter pins and lubricants used irregularly in a production process are classified as

a. miscellaneous expense.

b. direct materials.

c. indirect materials.

d. nonmaterial materials.

77. Which of the following is not another name for the term manufacturing overhead?

a. Factory overhead

b. Pervasive costs

c. Burden

d. Indirect manufacturing costs

78. Because of automation, which component of product cost is declining?

a. Direct labor

b. Direct materials

c. Manufacturing overhead

d. Advertising

79. The product cost that is most difficult to associate with a product is

a. direct materials.

b. direct labor.

c. manufacturing overhead.

d. advertising.

80. Manufacturing costs that cannot be classified as either direct materials or direct labor are known as

a. period costs.

b. nonmanufacturing costs.

c. selling and administrative expenses.

d. manufacturing overhead.

81. Which one of the following is an example of a period cost?

a. A change in benefits for the union workers who work in the New York factory of a Fortune 1000 manufacturer

b. Workers' compensation insurance on factory workers' wages allocated to the factory

c. Packaging materials for finished products

d. Payroll accountant’s salary for work that is done in the corporate head office

82. Which one of the following costs would not be inventoriable?

a. Period costs

b. Factory insurance costs

c. Indirect materials

d. Indirect labor costs

83. Direct materials and direct labor of a company total $8,000,000. If manufacturing overhead is $4,000,000, what is direct labor cost?

a. $4,000,000

b. $8,000,000

c. $0

d. Cannot be determined from the information provided

84. Which of the following are period costs?

a. Raw materials

b. Direct materials and direct labor

c. Direct labor and manufacturing overhead

d. Selling expenses

85. Sales commissions are classified as

a. overhead costs

b. period costs.

c. product costs.

d. indirect labor.

86. Product costs consist of

a. direct materials and direct labor only.

b. direct materials, direct labor, and manufacturing overhead.

c. selling and administrative expenses.

d. period costs.

87. Product costs are also called

a. direct costs.

b. overhead costs.

c. inventoriable costs.

d. capitalizable costs.

88. In accordance with the matching principle, inventoriable costs are expensed when

a. the product is finished and in stock.

b. the product has been returned.

c. the product to which the costs attach is sold.

d. all accounts payable have been settled.

89. When goods are sold, their inventoriable costs are transferred to

a. selling expenses.

b. gross profit.

c. cost of goods sold.

d. sales revenue.

90. A manufacturing company calculates cost of goods sold as follows:

a. Beginning FG inventory + cost of goods purchased – ending FG inventory.

b. Ending FG inventory – cost of goods manufactured + beginning FG inventory.

c. Beginning FG inventory – cost of goods manufactured – ending FG inventory.

d. Beginning FG inventory + cost of goods manufactured – ending FG inventory.

91. A manufacturing company reports cost of goods manufactured as a(n)

a. current asset on the balance sheet.

b. administrative expense on the income statement.

c. component in the calculation of cost of goods sold on the income statement.

d. component of the raw materials inventory on the balance sheet.

92. The subtotal, "Cost of goods manufactured" appears on

a. a merchandising company's income statement.

b. a manufacturing company's income statement.

c. both a manufacturing and a merchandising company's income statement.

d. neither a merchandising nor a manufacturing company's income statement.

93. Cost of goods manufactured in a manufacturing company is analogous to

a. ending inventory in a merchandising company.

b. beginning inventory in a merchandising company.

c. cost of goods available for sale in a merchandising company.

d. cost of goods purchased in a merchandising company.

94. Cost of goods sold

a. only appears on merchandising companies' income statements.

b. only appears on manufacturing companies' income statements.

c. appears on both manufacturing and merchandising companies' income statements.

d. is calculated exactly the same for merchandising and manufacturing companies.

95. Kushman Combines, Inc. has $20,000 of ending finished goods inventory as of December 31, 2022. If beginning finished goods inventory was $10,000 and cost of goods sold was $50,000, how much would Kushman report for cost of goods manufactured?

a. $70,000

b. $10,000

c. $60,000

d. $40,000

96. Cost of goods manufactured is calculated as follows:

a. Beginning WIP + direct materials used + direct labor + manufacturing overhead + ending WIP.

b. Direct materials used + direct labor + manufacturing overhead – beginning WIP + ending WIP.

c. Beginning WIP + direct materials used + direct labor + manufacturing overhead – ending WIP.

d. Direct materials used + direct labor + manufacturing overhead – ending WIP – beginning WIP.

97. If the cost of goods manufactured during a period exceeds the total manufacturing costs for the period, then

a. ending work in process inventory is greater than or equal to beginning work in process inventory.

b. ending work in process inventory is greater than beginning work in process inventory.

c. ending work in process inventory is equal to the cost of goods manufactured.

d. ending work in process inventory is less than the beginning work in process inventory.

98. On a costs of goods manufactured schedule, depreciation on factory equipment

a. is not listed because it is included with Depreciation Expense on the income statement.

b. appears in the manufacturing overhead section.

c. is not listed because it is not a product cost.

d. is not an inventoriable cost.

99. On the costs of goods manufactured schedule, the ending raw materials inventory is reported as a(n)

a. addition to raw materials purchases.

b. addition to raw materials available for use.

c. subtraction from raw materials available for use.

d. component of manufacturing overhead.

100. Dolan Company's accounting records reflect the following inventories:

Dec. 31, 2022 Dec. 31, 2021

Raw materials inventory $310,000 $260,000

Work in process inventory 300,000 160,000

Finished goods inventory 190,000 150,000

During 2022, $800,000 of raw materials were purchased, direct labor costs amounted to $670,000, and manufacturing overhead incurred was $640,000. (Assume that all raw materials used were direct materials.) The total raw materials available for use during 2022 for Dolan Company is

a. $1,110,000.

b. $660,000.

c. $750,000.

d. $1,060,000.

101. Dolan Company's accounting records reflect the following inventories:

Dec. 31, 2022 Dec. 31, 2021

Raw materials inventory $310,000 $260,000

Work in process inventory 300,000 160,000

Finished goods inventory 190,000 150,000

During 2022, $800,000 of raw materials were purchased, direct labor costs amounted to $670,000, and manufacturing overhead incurred was $640,000. (Assume that all raw materials used were direct materials.) Dolan Company's total manufacturing costs incurred in 2022 amounted to

a. $2,060,000.

b. $2,020,000.

c. $1,920,000.

d. $2,110,000.

102. Dolan Company's accounting records reflect the following inventories:

Dec. 31, 2022 Dec. 31, 2021

Raw materials inventory $310,000 $260,000

Work in process inventory 300,000 160,000

Finished goods inventory 190,000 150,000

During 2022, $800,000 of raw materials were purchased, direct labor costs amounted to $670,000, and manufacturing overhead incurred was $640,000. (Assume that all raw materials used were direct materials.)

If Dolan Company's cost of goods manufactured for 2022 amounted to $1,890,000, its cost of goods sold for the year is

a. $2,000,000.

b. $1,750,000.

c. $1,850,000.

d. $1,930,000.

103. What is work in process inventory generally described as?

a. Costs applicable to units that have been started in production but are only partially completed

b. Costs associated with the end stage of manufacturing that are almost always complete and ready for customers

c. Costs strictly associated with direct labor

d. Beginning stage production costs associated with labor costs dealing with bringing in raw materials from the shipping docks

104. Worth Company reported the following year-end information: beginning work in process inventory, $180,000; cost of goods manufactured, $866,000; beginning finished goods inventory, $252,000; ending work in process inventory, $220,000; and ending finished goods inventory, $264,000. Worth Company's cost of goods sold for the year is

a. $854,000.

b. $878,000.

c. $826,000.

d. $602,000.

105. Laflin Company reported the following year-end information:

Beginning work in process inventory $1,080,000

Beginning raw materials inventory 300,000

Ending work in process inventory 900,000

Ending raw materials inventory 480,000

Raw materials purchased 960,000

Direct labor 900,000

Manufacturing overhead 720,000

Laflin Company's cost of goods manufactured for the year is

a. $2,400,000.

b. $2,580,000.

c. $2,220,000.

d. $2,760,000.

106. Benson Inc.'s accounting records reflect the following inventories:

Dec. 31, 2021 Dec. 31, 2022

Raw materials inventory $ 80,000 $ 64,000

Work in process inventory 104,000 116,000

Finished goods inventory 100,000 92,000

During 2022, Benson purchased $1,450,000 of raw materials, incurred direct labor costs of $250,000, and incurred manufacturing overhead totaling $160,000. (Assume that all raw materials used were direct materials.) What was the cost of raw materials transferred to production during 2022 for Benson?

a. $1,386,000

b. $1,466,000

c. $1,450,000

d. $1,434,000

107. Benson Inc.'s accounting records reflect the following inventories:

Dec. 31, 2021 Dec. 31, 2022

Raw materials inventory $ 80,000 $ 64,000

Work in process inventory 104,000 116,000

Finished goods inventory 100,000 92,000

During 2022, Benson purchased $1,450,000 of raw materials, incurred direct labor costs of $250,000, and incurred manufacturing overhead totaling $160,000. (Assume that all raw materials used were direct materials.) What total manufacturing costs were incurred during 2022 for Benson?

a. $1,864,000

b. $1,876,000

c. $1,860,000

d. $1,872,000

108. Benson Inc.'s accounting records reflect the following inventories:

Dec. 31, 2021 Dec. 31, 2022

Raw materials inventory $ 80,000 $ 64,000

Work in process inventory 104,000 116,000

Finished goods inventory 100,000 92,000

During 2022, Benson purchased $1,450,000 of raw materials, incurred direct labor costs of $250,000, and incurred manufacturing overhead totaling $160,000. (Assume that all raw materials used were direct materials.) Assume Benson’s cost of goods manufactured for 2022 amounted to $1,660,000. What amount would the company report as cost of goods sold for the year?

a. $1,668,000

b. $1,568,000

c. $1,760,000

d. $1,652,000

109. Walker Company reported the following year-end information:

Beginning work in process inventory $ 46,000

Beginning raw materials inventory 24,000

Ending work in process inventory 50,000

Ending raw materials inventory 20,000

Raw materials purchased 830,000

Direct labor 440,000

Manufacturing overhead 100,000

What is Walker’s cost of goods manufactured for the year?

a. $834,000

b. $1,374,000

c. $1,370,000

d. $1,378,000

110. Ogleby Inc.'s accounting records reflect the following inventories:

Dec. 31, 2021 Dec. 31, 2022

Raw materials inventory $120,000 $ 96,000

Work in process inventory 156,000 174,000

Finished goods inventory 150,000 138,000

During 2022, Ogleby purchased $980,000 of raw materials, incurred direct labor costs of $175,000, and incurred manufacturing overhead totaling $224,000. (Assume that all raw materials used were direct materials.) What total manufacturing costs was incurred during 2022 for Ogleby?

a. $1,385,000

b. $1,403,000

c. $1,379,000

d. $1,415,000

111. Ogleby Inc.'s accounting records reflect the following inventories:

Dec. 31, 2021 Dec. 31, 2022

Raw materials inventory $120,000 $ 96,000

Work in process inventory 156,000 174,000

Finished goods inventory 150,000 138,000

During 2022, Ogleby purchased $980,000 of raw materials, incurred direct labor costs of $175,000, and incurred manufacturing overhead totaling $224,000. (Assume that all raw materials used were direct materials.) What would Ogleby Manufacturing report as cost of goods manufactured for 2022?

a. $1,229,000

b. $1,397,000

c. $1,391,000

d. $1,385,000

112. Wasson Company reported the following year-end information:

Beginning work in process inventory $ 35,000

Beginning raw materials inventory 18,000

Ending work in process inventory 38,000

Ending raw materials inventory 15,000

Raw materials purchased 560,000

Direct labor 210,000

Manufacturing overhead 120,000

What is Wasson’s total cost of work in process for the year?

a. $925,000

b. $893,000

c. $890,000

d. $928,000

113. Edmiston Company reported the following year-end information: beginning work in process inventory, $80,000; cost of goods manufactured, $750,000; beginning finished goods inventory, $50,000; ending work in process inventory, $70,000; and ending finished goods inventory, $40,000. What is Edmiston’s cost of goods sold for the year?

a. $750,000

b. $760,000

c. $740,000

d. $770,000

114. A company compiled the following information for the current year. (Assume that all raw materials used were direct materials.)

Raw materials inventory, January 1 $ 20,000

Raw materials inventory, December 31 40,000

Work in process inventory, January 1 18,000

Work in process inventory, December 31 12,000

Finished goods inventory, January 1 40,000

Finished goods inventory, December 31 32,000

Raw materials purchases 1,700,000

Direct labor 760,000

Factory utilities 150,000

Indirect labor 50,000

Factory depreciation 400,000

Operating expenses 420,000

What amount of the direct materials were used during the period?

a. $1,760,000.

b. $1,720,000.

c. $1,700,000.

d. $1,680,000.

115. A company compiled the following information for the current year. (Assume that all raw materials used were direct materials.)

Raw materials inventory, January 1 $ 20,000

Raw materials inventory, December 31 40,000

Work in process inventory, January 1 18,000

Work in process inventory, December 31 12,000

Finished goods inventory, January 1 40,000

Finished goods inventory, December 31 32,000

Raw materials purchases 1,700,000

Direct labor 760,000

Factory utilities 150,000

Indirect labor 50,000

Factory depreciation 400,000

Operating expenses 420,000

If direct materials used were $1,700,000, what were the total manufacturing costs for the period?

a. $3,060,000.

b. $3,066,000.

c. $2,860,000.

d. $3,480,000.

116. A company compiled the following information for the current year. (Assume that all raw materials used were direct materials.)

Raw materials inventory, January 1 $ 20,000

Raw materials inventory, December 31 40,000

Work in process inventory, January 1 18,000

Work in process inventory, December 31 12,000

Finished goods inventory, January 1 40,000

Finished goods inventory, December 31 32,000

Raw materials purchases 1,700,000

Direct labor 760,000

Factory utilities 150,000

Indirect labor 50,000

Factory depreciation 400,000

Operating expenses 420,000

If the total manufacturing costs are $3,000,000, what is the cost of goods manufactured for the period?

a. $3,014,000.

b. $2,994,000.

c. $3,006,000.

d. $3,008,000.

117. A company compiled the following information for the current year. (Assume that all raw materials used were direct materials.)

Raw materials inventory, January 1 $ 20,000

Raw materials inventory, December 31 40,000

Work in process inventory, January 1 18,000

Work in process inventory, December 31 12,000

Finished goods inventory, January 1 40,000

Finished goods inventory, December 31 32,000

Raw materials purchases 1,700,000

Direct labor 760,000

Factory utilities 150,000

Indirect labor 50,000

Factory depreciation 400,000

Operating expenses 420,000

If the cost of goods manufactured is $3,040,000, what is cost of goods sold for the period?

a. $3,046,000.

b. $3,008,000.

c. $3,032,000.

d. $3,048,000.

118. A company compiled the following information for the current year. (Assume that all raw materials used were direct materials.)

Raw materials inventory, January 1 $ 30,000

Raw materials inventory, December 31 60,000

Work in process inventory, January 1 27,000

Work in process inventory, December 31 18,000

Finished goods inventory, January 1 60,000

Finished goods inventory, December 31 48,000

Raw materials purchases 1,800,000

Direct labor 890,000

Factory utilities 225,000

Indirect labor 75,000

Factory depreciation 500,000

Operating expenses 630,000

What is the cost of direct materials used during the period?

a. $1,740,000.

b. $1,830,000.

c. $1,800,000.

d. $1,770,000.

119. A company compiled the following information for the current year. (Assume that all raw materials used were direct materials.)

Raw materials inventory, January 1 $ 30,000

Raw materials inventory, December 31 60,000

Work in process inventory, January 1 27,000

Work in process inventory, December 31 18,000

Finished goods inventory, January 1 60,000

Finished goods inventory, December 31 48,000

Raw materials purchases 1,800,000

Direct labor 890,000

Factory utilities 225,000

Indirect labor 75,000

Factory depreciation 500,000

Operating expenses 630,000

If the cost of direct materials used is $1,800,000 during a period, what are total manufacturing costs?

a. $3,490,000.

b. $3,499,000.

c. $3,190,000.

d. $4,120,000.

120. A company compiled the following information for the current year. (Assume that all raw materials used were direct materials.)

Raw materials inventory, January 1 $ 30,000

Raw materials inventory, December 31 60,000

Work in process inventory, January 1 27,000

Work in process inventory, December 31 18,000

Finished goods inventory, January 1 60,000

Finished goods inventory, December 31 48,000

Raw materials purchases 1,800,000

Direct labor 890,000

Factory utilities 225,000

Indirect labor 75,000

Factory depreciation 500,000

Operating expenses 630,000

Assuming that total manufacturing costs are $3,400,000, what is the cost of goods manufactured for the period?

a. $3,421,000.

b. $3,391,000.

c. $3,409,000.

d. $3,142,000.

121. A company compiled the following information for the current year. (Assume that all raw materials used were direct materials.)

Raw materials inventory, January 1 $ 30,000

Raw materials inventory, December 31 60,000

Work in process inventory, January 1 27,000

Work in process inventory, December 31 18,000

Finished goods inventory, January 1 60,000

Finished goods inventory, December 31 48,000

Raw materials purchases 1,800,000

Direct labor 890,000

Factory utilities 225,000

Indirect labor 75,000

Factory depreciation 500,000

Operating expenses 630,000

If the cost of goods manufactured is $3,460,000, what is cost of goods sold for the period?

a. $3,469,000.

b. $3,412,000.

c. $3,448,000.

d. $3,472,000.

122. Samson Company reported total manufacturing costs of $320,000, manufacturing overhead totaling $52,000, and direct materials totaling $64,000. What is the company’s direct labor cost?

a. Cannot be determined from the information provided.

b. $268,000

c. $256,000

d. $204,000

123. Given the following data for Mehring Company, what are (A) total manufacturing costs and (B) cost of goods manufactured?

Direct materials used $230,000 Beginning work in process inventory $30,000

Direct labor 150,000 Ending work in process inventory 15,000

Manufacturing overhead 255,000 Beginning finished goods inventory 38,000

Operating expenses 263,000 Ending finished goods inventory 23,000

(A) (B)

a. $620,000 $650,000

b. $635,000 $620,000

c. $635,000 $650,000

d. $650,000 $665,000

124. Penner Company reported total manufacturing costs of $450,000, manufacturing overhead totaling $78,000, and direct materials totaling $96,000. What is the company’s direct labor cost?

a. Cannot be determined from the information provided.

b. $624,000

c. $354,000

d. $276,000

125. Given the following data for Glennon Company, what are (A) total manufacturing costs and (B) costs of goods manufactured?

Direct materials used $270,000 Beginning work in process $40,000

Direct labor 200,000 Ending work in process 20,000

Manufacturing overhead 250,000 Beginning finished goods 50,000

Operating expenses 350,000 Ending finished goods 30,000

(A) (B)

a. $700,000 $740,000

b. $720,000 $700,000

c. $720,000 $740,000

d. $740,000 $760,000

126. Barton Company has beginning work in process inventory of $144,000 and total manufacturing costs of $686,000. If cost of goods manufactured is $660,000, what is the cost of the ending work in process inventory?

a. $150,000.

b. $118,000.

c. $190,000.

d. $170,000.

127. Gammil Company has beginning and ending raw materials inventories of $96,000 and $120,000, respectively. If direct materials used were $490,000, what was the cost of raw materials purchased?

a. $490,000.

b. $520,000.

c. $466,000.

d. $514,000.

128. Molina Company has beginning and ending work in process inventories of $130,000 and $145,000, respectively. If total manufacturing costs are $680,000, what is the total cost of goods manufactured?

a. $810,000.

b. $825,000.

c. $665,000.

d. $695,000.

129. Costas Company has beginning and ending raw materials inventories of $64,000 and $80,000, respectively. If direct materials used were $310,000, what was the cost of raw materials purchased?

a. $310,000.

b. $330,000.

c. $294,000.

d. $326,000.

130. Wood Company has beginning work in process inventory of $138,000 and total manufacturing costs of $477,000. If cost of goods manufactured is $480,000, what is the cost of the ending work in process inventory?

a. $120,000.

b. $141,000.

c. $150,000.

d. $135,000.

131. Given the following data for Harder Company, what is the cost of goods manufactured?

Direct materials used $120,000 Beginning work in process $20,000

Direct labor 200,000 Ending work in process 10,000

Manufacturing overhead 180,000 Beginning finished goods 25,000

Operating expenses 175,000 Ending finished goods 15,000

a. $490,000

b. $500,000

c. $510,000

d. $520,000

132. Which one of the following does not appear on the balance sheet of a manufacturing company?

a. Finished goods inventory

b. Work in process inventory

c. Cost of goods manufactured

d. Raw materials inventory

133. The equivalent account to finished goods inventory for a merchandising firm is referred to as

a. purchases.

b. cost of goods purchased.

c. inventory.

d. raw materials inventory.

134. How have many companies significantly lowered inventory levels and costs?

a. They use activity-based costing.

b. They utilize a balanced scorecard system.

c. They have a just-in-time method.

d. They focus on total quality management.

135. Which of the following terms describes the business processes associated with providing a product or service?

a. The manufacturing chain

b. The product chain

c. The supply chain

d. The value chain

136. Which of the following managerial accounting approaches attempts to allocate manufacturing overhead more accurately?

a. Balanced scorecard

b. Just-in-time inventory

c. Activity-based costing

d. Total quality management

137. What is “balanced” in the balanced scorecard approach?

a. The number of products produced

b. The emphasis on financial and non-financial performance measurements

c. The amount of costs allocated to products

d. The number of defects found on each product

138. Which of the following characteristics would likely be associated with a just-in-time inventory method?

a. Ending work in process inventory that would allow several production runs

b. A backlog of inventory orders not yet shipped

c. Minimal finished goods inventory on hand

d. An understanding with customers that they may come to the showroom and select from inventory on hand

139. Many companies now focus on reducing defects in finished products with the goal of zero defects. This is called

a. activity-based costing.

b. balanced scorecard.

c. value chain.

d. total quality management.

140. Financial and managerial accounting are similar in that both

a. have the same primary users.

b. produce general-purpose reports.

c. have reports that are prepared quarterly and annually.

d. deal with the economic events of an enterprise.

141. The managerial function that pertains to keeping the activities of the enterprise on track is

a. planning.

b. directing.

c. controlling.

d. accounting.

142. Property taxes on a manufacturing facility are an element of a

Product Cost Period Cost

a. Yes No

b. Yes Yes

c. No Yes

d. No No

143. For a manufacturing company, which of the following is an example of a period cost rather than a product cost?

a. Depreciation on factory equipment

b. Wages of salespersons

c. Wages of machine operators

d. Insurance on factory equipment

144. For a manufacturing firm, cost of goods available for sale is computed by adding the beginning finished goods inventory to

a. cost of goods purchased.

b. cost of goods manufactured.

c. net purchases.

d. total manufacturing costs.

145. If cost of goods manufactured is less than cost of goods sold, which of the following is correct?

a. Finished Goods Inventory has increased.

b. Work in Process Inventory has increased.

c. Finished Goods Inventory has decreased.

d. Work in Process Inventory has decreased.

146. The principal difference between the income statements of a merchandising company’s and a manufacturing company is the

a. cost of goods sold section.

b. operating income section.

c. operating expense section.

d. revenue section.

147. If total manufacturing costs are greater than cost of goods manufactured, which of the following is correct?

a. Work in Process Inventory has increased.

b. Finished Goods Inventory has increased.

c. Work in Process Inventory has decreased.

d. Finished Goods Inventory has decreased.

148. The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred is the

a. cost of goods manufactured.

b. total manufacturing overhead.

c. total manufacturing costs.

d. total cost of work in process.

149. The inventory accounts that show the cost of completed goods on hand and the costs applicable to production that is only partially completed are, respectively

a. Work in Process Inventory and Raw Materials Inventory.

b. Finished Goods Inventory and Raw Materials Inventory.

c. Finished Goods Inventory and Work in Process Inventory.

d. Raw Materials Inventory and Work in Process Inventory.

BRIEF Exercises

BE 150

Presented below are Truck Company’s monthly manufacturing cost data related to its personal computer products. (Assume that all raw materials used were direct materials.)

(a) Taxes on factory building $820,000

(b) Raw materials transferred to production 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.

Ex. 160

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

Ex. 161

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. Small tools used in production

_____ 6. Tires used in manufacturing vehicles

Ex. 162

Presented below is a list of costs and expenses incurred in the factory by Nu-Way Corporation, a manufacturer of teardrop travel trailers.

____ 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. USB ports installed in the travel trailers

____ 9. Property taxes on the factory building

____ 10. Insurance on factory equipment

Instructions

Classify the above items into the following categories:

DM — Direct Materials

DL — Direct Labor

MO — Manufacturing Overhead

Ex. 163

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

h. Indirect materials

Ex. 164

Kennedy Company reports the following costs and expenses in May.

Factory utilities $ 16,500 Direct labor $79,100

Depreciation on factory Sales salaries 48,400

equipment 12,650 Property taxes on factory

Depreciation on delivery trucks 3,800 building 2,500

Indirect factory labor 48,900 Repairs to office equipment 1,300

Indirect materials 70,800 Factory repairs 2,000

Direct materials used 157,600 Advertising 23,000

Factory manager's salary 8,000 Office supplies used 4,640

Instructions

From the information, determine the total amount of:

(a) Manufacturing overhead.

(b) Product costs.

(c) Period costs.

Ex. 165

Kwik Delivery Service reports the following costs and expenses in June 2022.

Indirect materials $ 8,400 Driver's salaries $17,000

Depreciation on delivery Advertising 5,100

equipment 11,200 Delivery equipment

Dispatcher's salary 5,000 repairs 300

Property taxes on office Office supplies 650

building 870 Office utilities 2,490

CEO's salary 12,000 Repairs on office

Gas and oil for delivery trucks 3,200 equipment 180

Instructions

Determine the total amount of (a) delivery service (product) costs and (b) period costs.

Ex. 166

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

Ex. 167

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

Ex. 167. (Cont.)

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.

Ex. 168

Presented below are incomplete 2022 manufacturing cost data for Tardy Corporation.

Instructions

Determine the missing amounts.

Ex. 169

Among the items that Howard 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 inventory, 1/1

8. Office supplies inventory, 12/31

9. Indirect labor

10. Heat and electricity for the print shop

Howard 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.

Ex. 170

Klein Company manufactures boats, each of which is equipped with a cellular phone. During September, 2022, the company purchased 100 cellular phones at a cost of $110 each. Klein 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. The remaining phones are to be installed in boats in the next production run.

Of the boats put into production during September, 2022, 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, 2022:

Raw materials inventory

Work in process inventory

Finished goods inventory

Cost of goods sold

Selling expenses

Ex. 171

Peters Manufacturing Company has the following data at June 30, 2022:

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 430,000

Sales 580,000

Work in process inventory, June 30 30,400

Finished goods inventory, June 30 55,200

Raw materials inventory, June 30 18,000

Ex. 171. (Cont.)

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.

Ex. 172

Glavine Corporation incurred the following costs while manufacturing its product:

Materials used in product $ 125,000 Advertising expense $45,000

Depreciation on factory 60,000 Property taxes on factory 19,000

Property taxes on store 7,500 Delivery expense 21,000

Labor costs of assembly-line workers 110,000 Sales commissions 35,000

Factory supplies used 23,000 Salaries paid to sales clerks 50,000

Work in process inventory was $27,000 at January 1 and $15,500 at December 31. Finished goods inventory was $65,000 at January 1 and $50,600 at December 31. (Assume all raw materials used were direct materials.)

Instructions

(a) Compute cost of goods manufactured.

(b) Compute cost of goods sold.

Ex. 173

The following information is available for Elliot Company. (Assume all raw materials used were direct materials.)

January 1, 2022 2022 December 31, 2022

Raw materials inventory $ 26,000 $30,000

Work in process inventory 18,500 22,200

Finished goods inventory 30,000 21,000

Materials purchased $170,000

Direct labor 230,000

Manufacturing overhead 180,000

Sales 800,000

Instructions

(a) Compute cost of goods manufactured.

(b) Prepare an income statement through gross profit.

Ex. 174

Manufacturing cost data for Morton Company are presented below. (Assume all raw materials used were direct materials.)

Case A Case B Case C

Direct materials used (a) $75,400 $130,000

Direct labor $ 57,000 76,000 (g)

Manufacturing overhead 46,500 81,600 102,000

Total manufacturing costs 195,650 (d) 283,700

Work in process inventory, 1/1/22 (b) 16,500 (h)

Total cost of work-in-process 221,500 (e) 327,000

Work in process inventory, 12/31/22 (c) 9,000 80,000

Cost of goods manufactured 180,275 (f) (i)

Instructions

Indicate the missing amount for each letter (a) through (i).

Ex. 175

From the account balances listed below, prepare a schedule of cost of goods manufactured for Sampson Manufacturing Company for the month ended December 31, 2022. (Assume all raw materials used were direct materials.)

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 15,000

Sales Salaries Expense 14,000

Factory Depreciation Expense 8,000

Finished Goods Inventory, December 1 35,000

Raw Materials Purchases 105,000

Work in Process Inventory, December 1 25,000

Factory Utilities Expense 6,000

Direct Labor 70,000

Raw Materials Inventory, December 31 19,000

Sales Returns and Allowances 5,000

Indirect Labor 21,000

Ex. 176

Rapid Manufacturing Company has the following data:

Direct labor $145,000

Direct materials used 151,000

Total manufacturing overhead 208,000

Beginning work in process inventory 26,000

Instructions

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

Ex. 177

The following costs and inventory data were taken from the accounts of Simon Company for 2022. (Assume all raw materials used were direct materials.)

January 1, 2022 December 31, 2022

Inventories: Raw materials $ 8,000 $ 7,000

Work in process 15,000 13,000

Finished goods 16,000 12,000

Costs incurred: Raw materials purchases $98,000

Direct labor 42,000

Factory rent 8,000

Factory utilities 10,000

Indirect materials 6,000

Indirect labor 9,000

Operating expenses 17,000

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 Simon Company for the year ended December 31, 2022 in good form.

d. Prepare the Cost of Goods Sold section of the Income Statement for Simon Company for the year ended December 31, 2022 in good form.

Ex. 178

Manufacturing costs for Carson Company for selected months are as follows. (Assume all raw materials used were direct materials.)

April July October

Beginning work in process inventory $ 80,000 (f) $ 88,000

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 860,000 510,000 450,000

Total cost of work in process (b) 640,000 (k)

Ending work in process inventory 75,000 (g) (l)

Cost of goods manufactured (c) 515,000 385,000

Beginning finished goods (d) 38,000 (m)

Cost of goods available for sale 960,000 (h) 480,000

Ending finished goods (e) 75,000 (n)

Cost of goods sold 820,000 (i) 355,000

Instructions

Indicate the missing amounts. (Show computations.)

Ex. 179

Fill in the missing information on the cost of goods manufactured schedule of Noland Manufacturing Company. (Assume all raw materials used were direct materials.)

NOLAND MANUFACTURING COMPANY

Cost of Goods Manufactured Schedule

For the Year Ended December 31, 2022

Work in process inventory (1/1) $340,000

Direct materials

Raw materials inventory (1/1) $ ?

Raw materials purchases 246,000

Raw materials available for use ?

Raw materials inventory (12/31) 37,000

Direct materials used $255,000

Direct labor ?

Manufacturing overhead

Indirect labor 19,000

Factory depreciation 38,000

Factory utilities 39,000

Total overhead ?

Total manufacturing costs ?

Total cost of work in process ?

Less: Work in process inventory (12/31) 322,000

Cost of goods manufactured $480,000

Ex. 180

Data for the cost of direct materials for the month ended March 31, 2022, are as follows:

Raw materials inventory, March 1, 2022 $76,000

Raw materials inventory, March 31, 2022 70,000

During March, the company purchased $260,000 of raw materials on account from Reed Company and $92,000 of raw materials for cash from Frye Company. In addition, $50,000 was paid on the Reed account balance. (Assume all raw materials used were direct materials.)

Instructions

Compute the cost of direct materials used during March.

Ex. 181

Presented below are incomplete 2022 manufacturing cost data for Tardy Corporation.

Instructions

Determine the missing amounts.

Ex. 182

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 inventory, 12/31

______ 7. Indirect labor

______ 8. Property taxes on office building

Ex. 183

Listed below are current asset items for Lester Company at December 31, 2022.

Finished goods inventory $35,000 Short-term investments $25,000

Cash 22,000 Raw materials inventory 17,000

Prepaid expenses 2,000 Work in process inventory 23,000

Accounts receivable 4,000 Supplies 500

Instructions

Prepare the current assets section of the balance sheet. (Include a complete heading.)