Test bank managerial accounting by kieso weygandt 5e ch001

Simple 20–30 3A Indicate the missing amount of different cost items, and prepare a condensed cost of goods manufactured schedule, an income statement, and a partial balance sheet.. Moder

CHAPTER 1 Managerial Accounting

ASSIGNMENT CLASSIFICATION TABLE

Brief Exercises Exercises

A Problems

B Problems

*1 Explain the distinguishing

*9 Prepare a work sheet and

closing entries for a

manufacturing company

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix

to the chapter

ASSIGNMENT CHARACTERISTICS TABLE

Problem

Number Description

Difficulty Level

Time Allotted (min.)

1A Classify manufacturing costs into different categories and

compute the unit cost

Simple 20–30

2A Classify manufacturing costs into different categories and

compute the unit cost

Simple 20–30

3A Indicate the missing amount of different cost items, and

prepare a condensed cost of goods manufactured schedule,

an income statement, and a partial balance sheet

Moderate 30–40

4A Prepare a cost of goods manufactured schedule, a partial

income statement, and a partial balance sheet

Moderate 30–40

5A Prepare a cost of goods manufactured schedule and a

correct income statement

Moderate 30–40

1B Classify manufacturing costs into different categories and

compute the unit cost

Simple 20–30

2B Classify manufacturing costs into different categories and

compute the unit cost

Simple 20–30

3B Indicate the missing amount of different cost items, and

prepare a condensed cost of goods manufactured schedule,

an income statement, and a partial balance sheet

Moderate 30–40

4B Prepare a cost of goods manufactured schedule, a partial

income statement, and a partial balance sheet

Moderate 30–40

5B Prepare a cost of goods manufactured schedule and a

correct income statement

Moderate 30–40

*6A Complete a worksheet; prepare a cost of goods

manufactured schedule; an income statement, and a

balance sheet; journalize and post the closing entries

Complex 40–50

BLOOM’S TAXONOMY TABLE

Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems Study Objective

E1-17 P1-4A P1-4B P1-3A P1-3B

Identify trends in managerial a

Q1-20 Q1-21 Q1-22 Q1-23 Q1-24 E1-18

Decision Making Across the Organization Communication Managerial Anal

Ethics Case All About You

MER-6 INDICATE HOW COST OF GOODS MANUFACTURED IS DETERMINED.

7 EXPLAIN THE DIFFERENCE BETWEEN A DISING AND A MANUFACTURING BALANCE SHEET.

MERCHAN-8 IDENTIFY TRENDS IN MANAGERIAL ACCOUNTING.

CHAPTER REVIEW

Managerial Accounting Basics

1 (S.O 1) Managerial accounting is a field of accounting that provides economic and financial

information for managers and other internal users Managerial accounting applies to all types

of businesses—service, merchandising, and manufacturing—and to all forms of businessorganizations—proprietorships, partnerships and corporations Moreover, managerial accounting

is needed in not-for-profit entities as well as in profit-oriented enterprises

Comparing Managerial and Financial Accounting

2 There are both similarities and differences between managerial and financial accounting

a Both fields of accounting deal with the economic events of a business and require that theresults of that company’s economic events be quantified and communicated to interestedparties

b The principal differences are the (1) primary users of reports, (2) types and frequency ofreports, (3) purpose of reports, (4) content of reports, and (5) verification process

3 The role of the managerial accountant has changed in recent years Whereas in the past theirprimary concern used to be collecting and reporting costs to management, today they alsoevaluate how well the company is using its resources and providing information to cross-functional teams comprised of personnel from production, operations, marketing, engineering, andquality control

Management Functions

4 (S.O 2) Managers perform three broad functions within an organization:

a Planning requires managers to look ahead and to establish objectives

b Directing involves coordinating a company’s diverse activities and human resources toproduce a smooth-running operation

c Controlling is the process of keeping the firm’s activities on track

Organizational Structure

5 In order to assist in carrying out management functions, most companies prepare organization

charts to show the interrelationships of activities and the delegation of authority and responsibility

with the company

Stockholders own the corporation but manage the company through a board of directors The

chief executive officer (CEO) has overall responsibility for managing the business The chief financial officer (CFO) is responsible for all of the accounting and finance issues the company

faces The CFO is supported by the controller and the treasurer.

Business Ethics

6 All employees are expected to act ethically in their business activities and an increasing number

of organizations provide their employees with a code of business ethics

7 Due to many fraudulent activities in recent years, U.S Congress passed the Sarbanes-Oxley Act

of 2002 which resulted in many implications for managers and accountants CEOs and CFOs

10 Direct materials are raw materials that can be physically and conveniently associated with the

finished product during the manufacturing process Indirect materials are materials that (a) do

not physically become a part of the finished product or (b) cannot be traced because their physicalassociation with the finished product is too small in terms of cost Indirect materials are accountedfor as part of manufacturing overhead

11 The work of factory employees that can be physically and conveniently associated with converting

raw materials into finished goods is considered direct labor In contrast, the wages of maintenance people, timekeepers, and supervisors are usually identified as indirect labor because their efforts

have no physical association with the finished product, or it is impractical to trace the costs to thegoods produced Indirect labor is classified as manufacturing overhead

12 Manufacturing overhead consists of costs that are indirectly associated with the manufacture of

the finished product Manufacturing overhead includes items such as indirect materials, indirectlabor, depreciation on factory buildings and machines, and insurance, taxes, and maintenance onfactory facilities

Product Versus Period Costs

13 (S.O 4) Product costs are costs that are a necessary and integral part of producing the finished product Period costs are costs that are matched with the revenue of a specific time period rather

than included as part of the cost of a salable product These are nonmanufacturing costs Periodcosts include selling and administrative expenses

Manufacturing Income Statement

14 (S.O 5) The income statements of a merchandising company and a manufacturing companydiffer in the cost of goods sold section

15 The cost of goods sold section of the income statement for a manufacturing company shows:

Beginning Cost of Ending Cost ofFinished Goods + Goods – Finished Goods = Goods SoldInventory Manufactured Inventory

Determining Cost of Goods Manufactured

16 (S.O 6) The determination of the cost of goods manufactured consists of the following:

a Beginning Work Total Current Total Cost of

in Process + Manufacturing = Work in ProcessInventory Costs

b Total Cost of Ending Cost of Goods

Work in – Work in Process = ManufacturedProcess Inventory

17 The costs assigned to the beginning work in process inventory are the manufacturing costsincurred in the prior period.

18 Total manufacturing costs is the sum of the direct materials costs, direct labor costs, andmanufacturing overhead incurred in the current period

19 Because a number of accounts are involved, the determination of costs of goods manufactured ispresented in a Cost of Goods Manufactured Schedule The cost of goods manufactured scheduleshows each of the cost factors above The format for the schedule is:

Beginning work in process $XXXXDirect materials used $XXXX

Direct labor XXXX

Manufacturing overhead XXXX

Total manufacturing costs XXXXTotal cost of work in process XXXXLess: Ending work in process XXXXCost of goods manufactured $XXXX

Manufacturing Balance Sheet

20 (S.O 7) The balance sheet for a manufacturing company may have three inventory accounts:finished goods inventory, work in process inventory, and raw materials inventory

21 The manufacturing inventories are reported in the current asset section of the balance sheet

a The inventories are generally listed in the order of their expected realization in cash

b Thus, finished goods inventory is listed first

22 Each step in the accounting cycle for a merchandising company is applicable to a manufacturingcompany

a For example, prior to preparing financial statements, adjusting entries are required

b Adjusting entries are essentially the same as those of a merchandising company

c The closing entries for a manufacturing company are also similar to those of a merchandisingcompany

Contemporary Developments

23 (S.O 8) Contemporary developments in managerial accounting involve: (a) a U.S economy thathas in general shifted toward an emphasis on providing services, rather than goods; and (b)efforts to manage the value chain and supply chain

24 Many companies have significantly lowered inventory levels and costs using just-in-time (JIT)

inventory methods Under a just-in-time method, goods are manufactured or purchased just in

time for use In addition, many companies have installed total quality management (TQM)

systems to reduce defects in finished products

25 Activity-based costing (ABC) is a popular method for allocating overhead that obtains more

accurate product costs The theory of constraints is a specific approach used to identify and manage constraints in order to achieve the company goals The balanced scorecard is a

performance-measurement approach that uses both financial and nonfinancial measures toevaluate all aspects of a company’s operations in an integrated fashion

*26 (S.O 9) When a worksheet is used in preparing financial statements, two additional columns areneeded for the cost of goods manufactured schedule

a The columns are labeled Cost of Goods Manufactured

b The columns are inserted before the income statement columns

*27 In the cost of goods manufactured columns,

a The beginning inventories of raw materials and work in process and all manufacturing costsare entered as debits

b The ending inventories of raw materials and work in process are entered as credits

c The balancing amount for these columns is the cost of goods manufactured and is entered as

a credit The same amount is also entered in the income statement debit columns

*28 The income statement and balance sheet columns are basically the same as for a merchandisingcompany

a Beginning finished goods inventory is entered in the income statement debit column

b Ending finished goods inventory is entered in the income statement credit column and thebalance sheet debit column

*29 In preparing closing entries, a Manufacturing Summary account is used to close all accounts thatappear in the cost of goods manufactured schedule

a Ending inventories of raw materials and work in process are debited and ManufacturingSummary is credited

b Beginning inventories of raw materials and work in process and all manufacturing costaccounts are credited and Manufacturing Summary is debited

c The balance in Manufacturing Summary is closed by debiting Income Summary and creditingManufacturing Summary

*30 As in the case of a merchandise company, all accounts shown in the income statement for amanufacturing company are closed to Income Summary

LECTURE OUTLINE

1 Managerial accounting, also called management accounting, is a field of accounting that provides economic and financial information for managers and other internal users.

2 Managerial accounting applies to all types of businesses: service, merchandising, and manufacturing It also applies to all forms of business organizations: proprietorships, partnerships, and corporations.

ILLUSTRATION 1-1 presents comparative differences between financial and

managerial accounting.

1 The distinguishing features of managerial accounting are:

a Primary users of reports—internal users: officers and managers.

b Types and frequency of reports—internal reports issued as frequently

as needed.

c Purpose of reports: special-purpose information for a specific decision.

d Content of reports—pertains to subunits of the business and may be very detailed; extends beyond double-entry accounting system to any relevant data; the reporting standard is relevance to the decision being made.

e Verification process—no independent audits.

TEACHING TIP

C Management Functions.

1 Manager’s activities and responsibilities can be classified into three broad functions:

ILLUSTRATION 1-2 depicts the major functions performed by managers Emphasize

that managers make decisions in carrying out these functions and need managerial accounting information as input into their decision making-process.

a Planning requires managers to look ahead and to establish objectives.

b Directing involves coordinating a company’s diverse activities and human resources to produce a smooth-running operation.

c Controlling is the process of keeping the company’s activities on track.

1 Most companies prepare organization charts to show the ships of activities and the delegation of authority and responsibility within the company.

interrelation-2 Stockholders own the corporation, but they manage it indirectly through

a board of directors they elect.

3 The chief executive officer (CEO) has overall responsibility for managing the business, but delegates responsibility to other officers.

4 Responsibilities within a company are classified as either: line positions— employees directly involved in the company’s primary revenue-generating operating activities, or staff positions—employees involved in activities that support line employees’ efforts.

TEACHING TIP

5 The chief financial officer (CFO) is responsible for all of the company’s accounting and finance issues, and is supported by the controller and the treasurer Also serving the CFO is the internal audit staff who review the reliability and integrity of financial information provided by the con- troller and treasurer.

1 Companies use complex systems to control and evaluate managers’ actions Unfortunately these systems and controls unwittingly create incentives for managers to take unethical actions sometimes.

2 Ethical business scandals (Enron, Worldcom) involving fraudulent ties of managers caused the U.S Congress to enact the Sarbanes- Oxley Act of 2002 This act requires that CEOs and CFOs certify that the financial statements give a fair presentation of the company’s operating results and its financial condition.

activi-3 Top managers must certify that the company maintains an adequate system of internal controls to safeguard the company’s assets and ensure accurate financial reports.

4 The Institute of Management Accountants (IMA) has developed a code

of ethical standards to provide guidance for managerial accountants This code states that management accountants should not commit acts

or condone acts by others in violation of these standards.

Use ILLUSTRATION 1-3 to define the three classes of manufacturing costs.

Emphasize that these are product costs that become a part of the value of the product They are not recognized as expenses until the product is sold Distinguish between product costs and period costs.

TEACHING TIP

Manufacturing costs are classified as (1) direct materials, (2) direct labor, or (3) manufacturing overhead.

1 Direct materials are raw materials that can be physically and directly associated with the finished product during the manufacturing process.

a Indirect materials:

(1) Do not physically become part of the finished product or,

(2) Cannot be traced because their physical association with the finished product is too small in terms of cost (i.e lock washers).

b Companies account for indirect materials as part of manufacturing overhead.

2 Direct labor is the work of factory employees that can be physically and directly associated with converting raw materials into finished goods.

a Indirect labor has no physical association with the finished product,

or it is impractical to trace the costs to the goods produced.

b Companies classify indirect labor as manufacturing overhead.

3 Manufacturing overhead consists of costs that are indirectly associated with the manufacture of the finished product.

a Manufacturing overhead includes indirect materials, indirect labor, depreciation on factory buildings and machines, and insurance, taxes, and maintenance on factory facilities.

1 Product costs are costs that are a necessary and integral part of producing the finished product.

2 Product costs do not become expenses until the company sells the

3 Period costs are costs that are matched with the revenue of a specific time period rather than included as part of the cost of a salable product.

4 Period costs include selling and administrative expenses and companies deduct them from revenues in the period in which they are incurred.

1 The principal differences in a manufacturer’s financial statements occur

in the cost of goods sold section in the income statement and the current assets section in the balance sheet.

2 Manufacturers compute cost of goods sold by adding the beginning ished goods inventory to the cost of goods manufactured and subtracting the ending finished goods inventory.

fin-ILLUSTRATION 1-4 contrasts the cost of goods sold sections on the income

statements of a merchandiser and a manufacturer.

3 To determine the cost of goods manufactured, companies add the cost

of the beginning work in process to the total manufacturing costs for the current year to find the total cost of work in process for the year Companies then subtract the ending work in process from the total cost

of work in process to find the cost of goods manufactured.

ILLUSTRATION 1-5 presents a cost of goods manufactured schedule Point out

that this schedule must be prepared before the cost of goods sold section on the income statement.

TEACHING TIP

TEACHING TIP