Cost Recognition. Product or Period

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1 Chapter Assignments 1 Exercises: Set B LO 2 Cost Recognition E1B. Concept Indicate whether each of the following costs for a bicycle manufacturer is a product or a period cost, a variable or a fixed cost, a value-adding or a nonvalue-adding cost, and, if it is a product cost, a direct or an indirect cost of the bicycle: Item Product or Period Cost Recognition Classifications Variable or Fixed Value-Adding or Non-Value-Adding Direct or Indirect Example: Bicycle tire Product Variable Value-adding Direct a. Depreciation on office computer b. Labor to assemble bicycle c. Labor to inspect bicycle d. Internal auditor s salary e. Lubricant for wheels Comparison of Income Statement Formats E2B. Indicate whether each of these equations applies to a service organization (SER), a retail organization (RET), or a manufacturing organization (MANF): a. Cost of Goods Sold 5 Beginning Merchandise Inventory 1 Net Cost of Purchases 2 Ending Merchandise Inventory b. Cost of Sales 5 Net Cost of Services Sold c. Cost of Goods Sold 5 Beginning Finished Goods Inventory 1 Cost of Goods Manufactured 2 Ending Finished Goods Inventory Characteristics of Organizations E3B. Indicate whether each of the following is typical of a service organization (SER), a retail organization (RET), or a manufacturing organization (MANF): a. Maintains only one balance sheet inventory account b. Maintains no balance sheet inventory accounts c. Maintains three balance sheet inventory accounts d. Purchases products ready for resale e. Designs and makes products for sale f. Sells services g. Determines the net cost of services sold h. Includes the cost of goods manufactured in calculating cost of goods sold i. Includes the net cost of purchases in calculating cost of goods sold Statement of Cost of Goods Manufactured E4B. During August, Radio Company s purchases of direct materials totaled $139,000; direct labor for the month was 3,400 hours at $8.75 per hour. Radio also incurred the following overhead costs: utilities, $5,870; supervision, $16,600; indirect materials, $6,750; depreciation, $6,200; insurance, $1,830; and miscellaneous, $1,100. Beginning inventory accounts were as follows: Materials Inventory, $48,600; Work in Process Inventory, $54,250; and Finished Goods Inventory, $38,500. Ending inventory accounts were as follows: Materials Inventory, $50,100; Work in Process Inventory, $48,400; and Finished Goods Inventory, $37,450. Prepare a statement of cost of goods manufactured. CHE-NEEDLES_FINM WEB.indd 1

2 2 Chapter 15: Managerial Accounting and Cost Concepts Statement of Cost of Goods Manufactured and Cost of Goods Sold E5B. Treetop Corp. makes irrigation sprinkler systems for tree nurseries. Ramsey Roe, Treetop s new controller, can find only the following partial information for the past year: Oak Loblolly Maple Spruce Direct materials used $ 3 $ 7 $(g) $ 8 Total manufacturing costs 6 (d) (h) 14 Overhead (j) Direct labor (a) Ending work in process inventory (b) Cost of goods manufactured (l) Beginning work in process inventory 2 (e) 3 (k) Ending finished goods inventory 2 6 (i) 9 Beginning finished goods inventory 3 (f) 5 7 Cost of goods sold (c) Compute the unknown values. List the accounts in the proper order, and show subtotals and totals as appropriate. Missing Amounts Manufacturing E6B. Incomplete inventory and income statement data for Toliver Corporation follow. Determine the missing amounts. Cost of Goods Sold Cost of Goods Manufactured Beginning Finished Goods Inventory Ending Finished Goods Inventory a. $ 10,000 $12,000 $ 1,000? b. $140,000? $45,000 $60,000 c.? $89,000 $23,000 $20,000 Inventories, Cost of Goods Sold, and Net Income E7B. The data that follow are for a retail organization and a manufacturing organization. 1. Fill in the missing data for the retail organization: First Second Third Fourth Sales $ 9 $(e) $ 15 $(k) Gross margin (a) 4 5 (l) Ending merchandise inventory 5 (f) 5 (m) Beginning merchandise inventory 4 (g) (h) 5 Net cost of purchases (b) 7 9 (n) Operating income 3 2 (i) 2 Operating expenses (c) Cost of goods sold 5 6 (j) 11 Cost of goods available for sale (d) CHE-NEEDLES_FINM WEB.indd 2

3 Chapter Assignments 3 2. Fill in the missing data for the manufacturing organization: LO 5 First Second Third Fourth Ending finished goods inventory $(a) $ 3 $(h) $ 6 Cost of goods sold (l) Operating income (m) Cost of goods available for sale 8 (d) Cost of goods manufactured 5 (e) (i) 8 Gross margin 4 (f) (j) 7 Operating expenses 3 (g) 5 6 Beginning finished goods inventory (b) 2 3 (n) Sales (c) 10 (k) 14 Unit Cost Determination E8B. Pattia Winery is one of the finest wineries in the country. One of its famous products is a red wine called Old Vines. Recently, management has become concerned about the increasing cost of making Old Vines and needs to determine if the current selling price of $10 per bottle is adequate. The winery wants to achieve a 25 percent gross profit on the sale of each bottle. The following information is given to you for analysis: Batch size 10,550 bottles Costs: Direct materials: Olen Millot grapes $22,155 Chancellor grapes 9,495 Bottles 5,275 Total direct materials costs $36,925 Direct labor: Pickers/loaders $ 2,110 Crusher 422 Processors 8,440 Bottler 13,293 Total direct labor costs $24,265 Overhead: Depreciation, equipment $ 2,743 Depreciation, building 5,275 Utilities 1,055 Indirect labor 6,330 Supervision 7,385 Supplies 9,917 Repairs 1,477 Miscellaneous 633 Total overhead costs $34,815 Total production costs $96, Compute the unit cost per bottle for materials, labor, and overhead. 2. Accounting Connection How would you advise management regarding the price per bottle of wine? (Round to the nearest cent.) 3. Compute the prime costs per unit and the conversion costs per unit. CHE-NEEDLES_FINM WEB.indd 3

4 4 Chapter 15: Managerial Accounting and Cost Concepts LO 5 LO 6 LO 6 Unit Costs in a Service Business E9B. Walden Green provides custom farming services to owners of 5-acre wheat fields. In July, he earned $2,400 by cutting, turning, and baling 3,000 bales. In the same month, he incurred the following costs: gas, $150; tractor maintenance, $115; and labor, $600. His annual tractor depreciation is $1,500. What was Green s cost per bale? What was his revenue per bale? Should he increase the amount he charges for his services? The Management Process E10B. Business Application Indicate whether each of the following management activities in a community hospital is part of planning (PL), performing (PE), evaluating (E), or communicating (C): a. Leasing five ambulances for the current year b. Comparing the actual number with the planned number of patient days in the hospital for the year c. Developing a strategic plan for a new pediatric wing d. Preparing a report showing the past performance of the emergency room e. Developing standards, or expectations, for performance in the hospital admittance area for next year f. Preparing the hospital s balance sheet and income statement and distributing them to the board of directors g. Maintaining an inventory of bed linens and bath towels h. Formulating a corporate policy for the treatment and final disposition of hazardous waste materials i. Preparing a report on the types and amounts of hazardous waste materials removed from the hospital in the last three months j. Recording the time taken to deliver food trays to patients The Planning Framework E11B. Business Application Edward Ortez has just opened a company that imports fine ceramic gifts from Mexico and sells them over the Internet. In planning his business, Ortez did the following: 1. Listed his expected expenses and revenues for the first six months of operations 2. Decided that he wanted the company to provide him with income for a good lifestyle and funds for retirement 3. Determined that he would keep his expenses low and generate enough revenues during the first two months of operations so that he would have a positive cash flow by the third month 4. Decided to focus his business on providing customers with the finest Mexican ceramics at a favorable price 5. Developed a complete list of goals, objectives, procedures, and policies relating to how he would find, buy, store, sell, and ship goods and collect payment 6. Decided not to have a retail operation but to rely solely on the Internet to market the products 7. Decided to expand his website to include ceramics from other Central American countries over the next five years Match each of Ortez s actions to the components of the planning framework: goal, mission, strategic objectives, tactical objectives, operating objectives, business plan, and budget. CHE-NEEDLES_FINM WEB.indd 4

5 Chapter Assignments 5 LO 7 LO 7 Ethical Conduct E12B. Business Application Katrina Storm went to work for NOLA Industries five years ago. She was recently promoted to cost accounting manager and now has a new boss, Vicky Howe, the corporate controller. Last week, Storm and Howe went to a twoday professional development program on international accounting standards changes. During the first hour of the first day s program, Howe disappeared and Storm didn t see her again until the cocktail hour. The same thing happened on the second day. During the trip home, Storm asked Howe if she had enjoyed the conference. She replied: Katrina, the golf course was excellent. You play golf. Why don t you join me during the next conference? I haven t sat in on one of those sessions in ten years. This is my R&R time. Those sessions are for the new people. My experience is enough to keep me current. Plus, I have excellent people to help me as we adjust our accounting system to the international changes being implemented. Does Katrina Storm have an ethical dilemma? If so, what is it? What are her options? How would you solve her problem? Be prepared to defend your answer. Corporate Ethics E13B. Business Application To answer the following questions, conduct a search of several companies websites: (1) Does the company have an ethics statement? (2) Does it express a commitment to environmental or social issues? (3) In your opinion, is the company ethically responsible? Select one of the companies you researched and write a brief description of your findings. CHE-NEEDLES_FINM WEB.indd 5

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