Total period costs include all expenses not included in inventory:Sales Salaries Expense $ 50,000 Cost of Goods Sold: Gross Profit Operating Expenses: Administrative Salaries Expense Sal
Trang 12 Total period costs include all expenses not included in inventory:
Sales Salaries Expense $ 50,000
Cost of Goods Sold:
Gross Profit Operating Expenses:
Administrative Salaries Expense Sales Salaries Expense
Total Operating Expenses Operating Income
Net Purchases and Freight In Cost of Goods Available for Sale Merchandise Inventory, December 31 Merchandise Inventory, January 1
$ 500,000
Gross Profit % = Gross Profit / Sales Revenue
Profit Margin Ratio = Operating Income / Sales Revenue
18,000 50,000 64,000
$ 20,000
300,000 (30,000)
270,000 230,000 280,000
JACKSON, INC.
Income Statement Year Ended December 31, 2015
Trang 2a Depreciation on plant equipment
b Depreciation on salespersons’ automobiles
c Insurance on plant building
d Marketing manager’s salary
e Raw materials
f Manufacturing overhead
g Electricity bill for home office
h Production employee wages
2 Show how to compute cost of goods manufactured Use the following
amounts: direct materials used, $24,000; direct labor, $9,000; manufacturing
overhead, $17,000; beginning Work-in-Process Inventory, $5,000; and ending
Work- in-Process Inventory, $4,000
3 Using the results from Requirement 2, calculate the per unit cost for goods
manufactured assuming 1,000 units were manufactured
4 Beginning Finished Goods Inventory had 100 units that had a unit cost of $50
each Ending Finished Goods Inventory has 200 units left Calculate cost of goods
sold assuming FIFO inventory costing is used
Beginning Work-in-Process Inventory $ 5,000
Direct Materials Used $ 24,000
Total Manufacturing Costs Incurred during Period 50,000
Total Manufacturing Costs to Account For 55,000
Ending Work-in-Process Inventory (4,000)
>
Trang 3
cost of goods Manufactured / total units produced = unit product cost
Key terms
Budget (p 956)
A financial plan that managers use to
coordinate a business’s activities
Controlling (p 956)
Implementing plans and evaluating the
results of business operations by
com-paring the actual results to the budget
Anything for which managers want a
separate measurement of cost
Cost of Goods Manufactured
(p 967)
The manufacturing costs of the goods
that finished the production process in
a given accounting period
Direct Cost (p 964)
Cost that can be easily and cost-
effectively traced to a cost object
Direct Labor (DL) (p 965)
The labor cost of employees who
convert raw materials into finished
products
Direct Materials (DM) (p 965)
Materials that become a physical part of
a finished product and whose costs are easily traced to the finished product
Enterprise Resource Planning (ERP) (p 959)
Software system that can integrate all
of a company’s functions, departments, and data into a single system
Finished Goods Inventory (FG) (p 963)
Completed goods that have not yet been sold
to justify tracing to the specific product
Indirect Materials (p 965)
Materials used in making a product but whose costs either cannot be conveniently traced directly to specific finished products or whose costs are not large enough to justify tracing to the specific product
Just-in-Time (JIT) Management (p 959)
A cost management system in which
a company produces products just in time to satisfy needs Suppliers deliver materials just in time to begin produc-tion and finished units are completed just in time for delivery to the customer
Management Accountability (p 957)
The manager’s responsibility to wisely manage the resources of an organization
Manufacturing Company (p 962)
A company that uses labor, equipment, supplies, and facilities to convert raw materials into finished products
Manufacturing Overhead (MOH) (p 965)
Manufacturing costs that cannot be ily and cost-effectively traced to a cost object Includes all manufacturing costs except direct materials and direct labor
>
Requirement 3
Beginning Finished Goods Inventory (100 @ $50 per unit) $ 5,000
Ending Finished Goods Inventory (200 @ $51 per unit) (10,200) Cost of Goods Sold [(100 @ $50 per unit) + (800 @ $51 per unit)] $ 45,800
Requirement 4
Trang 4The cost of purchasing or making a
product The cost is recorded as an
asset and then expensed when the
A company that sells services—time,
skills, and/or knowledge—instead of
products
Stakeholder (p 957)
An individual or group that has an terest in a business, including customers, creditors, suppliers, and investors
in-Total Quality Management (TQM) (p 959)
A philosophy designed to integrate all organizational areas in order to provide customers with superior products and services, while meeting organizational goals throughout the value chain
Value Chain (p 959)
Includes all activities that add value to a company’s products and services
Work-in-Process Inventory (WIP) (p 963)
Goods that have been started in the manufacturing process but are not yet complete
Quick check
1 Which is not a characteristic of managerial accounting information?
a Emphasizes the external financial statements
b Provides detailed information about individual parts of the company
c Emphasizes relevance
d Focuses on the future
2 World-class businesses use which of these systems to integrate all of a company’s
worldwide functions, departments, and data into a single system?
a Cost standards c Just-in-time management
b Enterprise resource planning d All of the above
3 Today’s business environment is characterized by
a global competition c a shift toward a service economy
b time-based competition d Items a, b, and c are correct
4 A management accountant who avoids conflicts of interest meets the ethical
standard of
a confidentiality c credibility
5 Which of the following accounts does a manufacturing company have that a service
company does not have?
a Advertising Expense c Cost of Goods Sold
b Salaries Payable d Retained Earnings
Trang 5
6 Dunaway Company reports the following costs for the year:
Direct Materials Used $ 120,000 Direct Labor Incurred 150,000 Manufacturing Overhead Incurred 75,000 Selling and Administrative Expenses 175,000
How much are Dunaway’s period costs?
7 Which of the following is a direct cost of manufacturing a sport boat?
a Salary of an engineer who rearranges plant layout
b Depreciation on plant and equipment
c Cost of the boat engine
d Cost of the customer service hotline
8 Which of the following is not part of manufacturing overhead for producing
a computer?
a Manufacturing plant property taxes
b Manufacturing plant utilities
c Depreciation on delivery trucks
d Insurance on plant and equipment
Questions 9 and 10 use the data that follow.
Suppose a bakery reports this information:
Beginning Raw Materials Inventory $ 6,000 Ending Raw Materials Inventory 5,000 Beginning Work-in-Process Inventory 3,000 Ending Work-in-Process Inventory 2,000 Beginning Finished Goods Inventory 4,000 Ending Finished Goods Inventory 6,000
Trang 6
Assess your progress
review Questions
1 What is the primary purpose of managerial accounting?
2 Explain the difference between planning and controlling
3 List six differences between financial accounting and managerial accounting
4 How does managerial accounting assist managers with their responsibilities to the
company’s stakeholders?
5 List the four IMA standards of ethical practice and briefly describe each
6 Describe a service company and give an example
7 Describe a merchandising company and give an example
8 What are product costs?
9 How do period costs differ from product costs?
10 How do manufacturing companies differ from merchandising companies?
11 List the three inventory accounts used by manufacturing companies and describe
each
12 How does a manufacturing company calculate cost of goods sold? How is this
different from a merchandising company?
13 Explain the difference between a direct cost and an indirect cost
14 What are the three product costs for a manufacturing company? Describe each
15 Give five examples of manufacturing overhead
16 What are prime costs? Conversion costs?
17 How is cost of goods manufactured calculated?
18 How does a manufacturing company calculate unit product cost?
19 How does a service company calculate unit cost per service?
20 How does a merchandising company calculate unit cost per item?
>
Trang 7
short exercisesS16-1 Comparing managerial accounting and financial accounting
For each of the following, indicate whether the statement relates to managerial accounting (MA) or financial accounting (FA):
a. Helps investors make investment decisions.
b. Provides detailed reports on parts of the company.
c. Helps in planning and controlling operations.
d. Reports must follow Generally Accepted Accounting Principles (GAAP).
e. Reports audited annually by independent certified public accountants.
S16-2 Identifying management accountability and the stakeholders
For each of the following management responsibilities, indicate the primary stakeholder group to whom management is responsible
1 Providing high-quality, reliable products/services
for a reasonable price in a timely manner.
a Investors
b Creditors
2 Paying taxes in a timely manner c Suppliers
3 Providing a safe, productive work environment d Employees
5 Repaying principal plus interest in a timely
manner.
f Government
g Community
S16-3 Matching business trends terminology
Match the term with the correct definition
1 A philosophy designed to integrate all organizational areas in
order to provide customers with superior products and services while meeting organizational objectives Requires improving quality and eliminating defects and waste.
a ERP
b JIT
c E-commerce
d TQM
2 Use of the Internet for business functions such as sales and customer
service Enables companies to reach customers around the world.
3 Software system that integrates all of a company’s functions,
departments, and data into a single system.
4 A system in which a company produces product just when it is
needed to satisfy needs Suppliers deliver materials when they are needed to begin production, and finished units are completed at the right time for delivery to customers.
Learning Objective 1
Learning Objective 1
Learning Objective 1
>
Trang 8
S16-4 Identifying ethical standards
The Institute of Management Accountants’ Statement of Ethical Professional
Practice requires managerial accountants to meet standards regarding the following:
• Competence
• Confidentiality
• Integrity
• Credibility
Consider the following situations Which standard(s) are violated in each situation?
a You tell your brother that your company will report earnings significantly above financial
analysts’ estimates.
b You see others take home office supplies for personal use As an intern, you do the
same thing, assuming that this is a ”perk.”
c At a company-paid conference on e-commerce, you skip the afternoon session and go
sightseeing.
d You failed to read the detailed specifications of a new accounting software package
that you asked your company to purchase After it is installed, you are surprised that it
is incompatible with some of your company’s older accounting software.
e You do not provide top management with the detailed job descriptions they
requested because you fear they may use this information to cut a position in your
department.
S16-5 Computing cost of goods sold, merchandising company
Use the following information for The Tinted View, a retail merchandiser of auto
windshields, to compute the cost of goods sold:
Learning Objective 1
Learning Objective 2
Trang 9Cost of Goods Sold:
Beginning Merchandise Inventory (a) 29,000 Purchases and Freight In 48,000 (e)
Cost of Goods Available for Sale (b) 88,000 Ending Merchandise Inventory (1,900) (1,900)
Selling and Administrative Expenses (c) 84,000 Operating Income $ 13,000 $ (g)
S16-7 Distinguishing between direct and indirect costs
Granger Cards is a manufacturer of greeting cards Classify its costs by matching the costs to the terms
1 Direct materials a Artists’ wages
2 Direct labor b Wages of warehouse workers
3 Indirect materials c Paper
4 Indirect labor d Depreciation on manufacturing equipment
5 Other manufacturing overhead e Manufacturing plant manager’s salary
f Property taxes on manufacturing plant
g Glue for envelopes
S16-8 Computing manufacturing overhead
Glass Doctor Company manufactures sunglasses Following is a list of costs the company incurred during May Use the list to calculate the total manufacturing overhead costs for the month
Depreciation on company cars used by sales force 3,000
Learning Objective 2
Learning Objective 3
Learning Objective 3
Trang 10
S16-9 Identifying product costs and period costs
Classify each cost of a paper manufacturer as either product cost or period cost:
a Salaries of scientists studying ways to speed forest growth.
b Cost of computer software to track WIP Inventory.
c Cost of electricity at the paper mill.
d Salaries of the company’s top executives.
e Cost of chemicals to treat the paper.
f Cost of TV ads.
g Depreciation on the manufacturing plant.
h Cost to purchase wood pulp.
i Life insurance on the CEO.
S16-10 Computing direct materials used
Piedmont, Inc has compiled the following data:
Purchases of Raw Materials $ 6,400
Ending Inventory of Raw Materials 1,500 Beginning Inventory of Raw Materials 4,000
Assume all materials used are direct materials (none are indirect) Compute the
amount of direct materials used
S16-11 Computing cost of goods manufactured
Use the following inventory data for All Pro Golf Company to compute the cost
of goods manufactured for the year:
Direct Materials Used $ 10,000 Manufacturing Overhead 21,000 Work-in-Process Inventory:
Trang 11
S16-12 Computing cost of goods sold, manufacturing company
Use the following information to calculate the cost of goods sold for The Ellis Company for the month of June:
Finished Goods Inventory:
Cost of Goods Manufactured 156,000
S16-13 Calculating unit cost per service
Duncan and Oates provides hair-cutting services in the local community In February, the business cut the hair of 230 clients, earned $5,200 in revenues, and incurred the following operating costs:
Hair Supplies Expense $ 805 Building Rent Expense 1,150
Depreciation Expense—Equipment 46What was the cost of service to provide one haircut?
exercisesE16-14 Comparing managerial accounting and financial accounting
Match the following terms to the appropriate statement Some terms may be used more than once and some terms may not be used at all
Budget Managerial Creditors Managers Controlling Planning Financial Stockholders
a Accounting systems that must follow GAAP
b External parties for whom financial accounting reports are prepared
c The role managers play when they are comparing the company’s actual results with the planned results
d Internal decision makers
e Accounting system that provides information on a company’s past performance
f Accounting system not restricted by GAAP but chosen by comparing the costs versus the benefits of the system
g The management function that involves choosing goals and the means to achieve them
Learning Objective 4
Learning Objective 5
Learning Objective 1
>
Trang 12
E16-15 Understanding today’s business environment
Match the following terms to the appropriate statement Some terms may be used
more than once and some terms may not be used at all
E-commerce Just-in-time management (JIT)
Enterprise resource planning (ERP) Total quality management (TQM)
a A management system that focuses on maintaining lean inventories while
pro-ducing products as needed by the customer
b A philosophy designed to integrate all organizational areas in order to provide
cus-tomers with superior products and services while meeting organizational objectives
c Integrates all of a company’s functions, departments, and data into a single system
d Adopted by firms to conduct business on the Internet
E16-16 Making ethical decisions
Sue Peters is the controller at Vroom, a car dealership Dale Miller recently has
been hired as bookkeeper Dale wanted to attend a class in Excel spreadsheets, so
Sue temporarily took over Dale’s duties, including overseeing a fund used for gas
purchases before test drives Sue found a shortage in the fund and confronted Dale
when he returned to work Dale admitted that he occasionally uses the fund to pay
for his own gas Sue estimated the shortage at $450
Requirements
1. What should Sue Peters do?
2. Would you change your answer if Sue Peters was the one recently hired as
controller and Dale Miller was a well-liked, longtime employee who indicated
he always eventually repaid the fund?
Use the following data for Exercises E16-17, E16-18, and E16-19.
Selected data for three companies are given below (All amounts in millions.)
Learning Objective 1
Learning Objective 1
Finished Goods Inventory 6 Accounts Receivable 8 Sales Revenue 35
Cost of Goods Manufactured 25
Administrative Expenses 4
Raw Materials Inventory 3
Trang 13Using the above data, calculate operating income for each company.
E16-19 Identifying differences between service, merchandising, and
manufacturing companies
Using the above data, calculate total current assets for each company
E16-20 Classifying costs
Wheels, Inc manufactures wheels for bicycles, tricycles, and scooters For each cost given below, determine if the cost is a product cost or a period cost If the cost is
a product cost, further determine if the cost is direct materials (DM), direct labor (DL), or manufacturing overhead (MOH) and then determine if the product cost
is a prime cost, conversion cost, or both If the cost is a period cost, further
deter-mine if the cost is a selling expense or administrative expense (Admin) Cost (a) is
answered as a guide.
DM Dl Moh prime conversion selling Admin.
Trang 14
E16-21 Computing cost of goods manufactured
Consider the following partially completed schedules of cost of goods
manufactured Compute the missing amounts
Boswell, Inc laura’s Bakery rustic gear
Beginning Work-in-Process Inventory $ (a) $ 40,500 $ 2,200
Total Manufacturing Costs Incurred during the Year 45,300 (d) (h)
Total Manufacturing Costs to Account For 55,800 (e) 7,400
Ending Work-in-Process Inventory (c) (25,900) (2,500)
Cost of Goods Manufactured $ 51,200 $ (f) $ (i)
E16-22 Preparing a schedule of cost of goods manufactured
Knight Corp., a lamp manufacturer, provided the following information for the
year ended December 31, 2014
other information:
Depreciation, plant building and equipment $ 16,000
1. Use the information to prepare a schedule of cost of goods manufactured
2. What is the unit product cost if Knight manufactured 2,160 lamps for the year?
Learning Objective 4
Learning Objective 4
1 COGM: $432,000
Trang 15
E16-23 Computing cost of goods manufactured and cost of goods sold
Use the following information for a manufacturer to compute cost of goods manufactured and cost of goods sold:
E16-24 Calculating income and cost per service for a service company
Fido Grooming provides grooming services for pets In April, the company earned
$16,300 in revenues and incurred the following operating costs to groom 650 dogs:
Grooming Supplies Expense 1,625
Depreciation Expense—Equipment 130
Requirements
1. What is Fido’s net income for April?
2. What is the cost of service to groom one dog?
E16-25 Calculating income and cost per unit for a merchandising company
Snyder Brush Company sells standard hair brushes The following information summarizes Snyder’s operating activities for 2014:
Selling and Administrative Expenses $ 49,680
1. Calculate the operating income for 2014
2. Snyder sold 6,000 brushes in 2014 Compute the unit cost for one brush
Trang 16
P16-26A Applying ethical standards, management accountability
Natalia Wallace is the new controller for Smart Software, Inc., which develops and
sells education software Shortly before the December 31 fiscal year-end, James
Cauvet, the company president, asks Wallace how things look for the year-end
numbers He is not happy to learn that earnings growth may be below 13% for the
first time in the company’s five-year history Cauvet explains that financial analysts
have again predicted a 13% earnings growth for the company and that he does not
intend to disappoint them He suggests that Wallace talk to the assistant controller,
who can explain how the previous controller dealt with such situations The
assistant controller suggests the following strategies:
a Persuade suppliers to postpone billing $13,000 in invoices until January 1
b Record as sales $115,000 in certain software awaiting sale that is held in a
public warehouse
c Delay the year-end closing a few days into January of the next year, so that some
of the next year’s sales are included in this year’s sales
d Reduce the estimated Bad Debts Expense from 5% of Sales Revenue to 3%,
given the company’s continued strong performance
e Postpone routine monthly maintenance expenditures from December to January
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. How might these inconsistencies affect the company’s stakeholders?
3. What should Wallace do if Cauvet insists that she follow all of these suggestions?
P16-27A Classifying period costs and product costs
Lawlor, Inc is the manufacturer of lawn care equipment The company incurs the
following costs while manufacturing weed trimmers:
1. Describe the difference between period costs and product costs
2. Classify Lawlor’s costs as period costs or product costs If the costs are product costs,
further classify them as direct materials, direct labor, or manufacturing overhead
Learning Objective 1
Learning Objective 3
>
Trang 171. Define the three business types: service, merchandising, and manufacturing.
2. Based on the data given for the two companies, determine the business type of each one
3. Calculate the cost of goods sold for each company
P16-29A Preparing an income statement and calculating unit cost for a service
company
The Windshield People repair chips in car windshields The company incurred the following operating costs for the month of February 2014:
Windshield repair materials 4,900
Requirements
1. Prepare an income statement for the month of February
2. Compute the per unit cost of repairing one windshield
3. The manager of The Windshield People must keep unit operating cost below
$50 per windshield in order to get his bonus Did he meet the goal?
Learning Objectives 2, 4, 5
3 Company B: $216,250
Learning Objectives 2, 5
2 $35.36
Trang 18
P16-30A Preparing an income statement and calculating unit cost for a
merchandising company
In 2014, Charlie Snyder opened Charlie’s Pets, a small retail shop selling pet supplies
On December 31, 2014, the accounting records of Charlie’s Pets showed the following:
Inventory on December 31, 2014 $ 10,200 Inventory on January 1, 2014 15,100
Utilities Expense for the shop 3,900
2. Charlie’s Pets sold 4,250 units Determine the unit cost of the merchandise sold
P16-31A Preparing a schedule of cost of goods manufactured and an income
statement for a manufacturing company
Fido Treats manufactures its own brand of pet chew bones At the end of December
2014, the accounting records showed the following:
other information:
2. Prepare an income statement for Fido Treats for the year ended December 31, 2014
3. How does the format of the income statement for Fido Treats differ from the
income statement of a merchandiser?
4. Fido Treats manufactured 18,075 units of its product in 2014 Compute the
company’s unit product cost for the year
Learning Objectives 2, 5
1 Net income: $14,950
Learning Objectives 2, 4
2 Net income: $33,900
Trang 19
P16-32A Preparing a schedule of cost of goods manufactured and an income
statement for a manufacturing company
Certain item descriptions and amounts are missing from the monthly schedule
of cost of goods manufactured and income statement of Tioga Manufacturing Company Fill in the blanks with the missing words and replace the Xs with the correct amounts
Total
Ending Raw Materials Inventory
Beginning Raw Materials Inventory Purchases of Raw Materials
$ 22,000
$ X
$ X X
X (29,000)
175,000 43,000
$ X 54,000 80,000 (23,000)
TIOGA MANUFACTURING COMPANY
June 30, 2014 :
Costs Costs
Cost of Goods Ending
Beginning
$ X
$ X
217,000 283,000
X
159,000 94,000
$ 112,000 X X X
TIOGA MANUFACTURING COMPANY
June 30, 2014
Trang 20
P16-33A Determining flow of costs through a manufacturer’s inventory accounts
Renka Shoe Company makes loafers During the most recent year, Renka incurred
total manufacturing costs of $26,400,000 Of this amount, $2,100,000 was direct
materials used and $19,800,000 was direct labor Beginning balances for the year
were Raw Materials Inventory, $600,000; Work-in-Process Inventory, $800,000;
and Finished Goods Inventory, $700,000 At the end of the year, balances were
Raw Materials Inventory, $900,000; Work-in-Process Inventory, $1,400,000; and
Finished Goods Inventory, $990,000
Requirements
Analyze the inventory accounts to determine:
1. Cost of raw materials purchased during the year
2. Cost of goods manufactured for the year
3. Cost of goods sold for the year
P16-34B Applying ethical standards, management accountability
Ava Borzi is the new controller for Halo Software, Inc., which develops and sells
education software Shortly before the December 31 fiscal year-end, Jeremy Busch,
the company president, asks Borzi how things look for the year-end numbers He
is not happy to learn that earnings growth may be below 9% for the first time in
the company’s five-year history Busch explains that financial analysts have again
predicted a 9% earnings growth for the company and that he does not intend
to disappoint them He suggests that Borzi talk to the assistant controller, who
can explain how the previous controller dealt with such situations The assistant
controller suggests the following strategies:
a Persuade suppliers to postpone billing $18,000 in invoices until January 1
b Record as sales $120,000 in certain software awaiting sale that is held in a
public warehouse
c Delay the year-end closing a few days into January of the next year, so that some
of the next year’s sales are included in this year’s sales
d Reduce the estimated Bad Debts Expense from 3% of Sales Revenue to 2%,
given the company’s continued strong performance
e Postpone routine monthly maintenance expenditures from December to January
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. How might these inconsistencies affect the company’s stakeholders?
3. What should Borzi do if Busch insists that she follow all of these suggestions?
Learning Objective 4
3 $25,510,000
Learning Objective 1
>
Trang 21
P16-35B Classifying period costs and product costs
Langley, Inc is the manufacturer of lawn care equipment The company incurs the following costs while manufacturing edgers:
1. Describe the difference between period costs and product costs
2. Classify Langley’s costs as period costs or product costs If the costs are product costs, further classify them as direct materials, direct labor, or manufacturing overhead
P16-36B Calculating cost of goods sold for merchandising and manufacturing
Merchandise Inventory 13,000 Finished Goods Inventory 15,000
Cost of Goods Manufactured 172,250
Requirements
1. Define the three business types: service, merchandising, and manufacturing
2. Based on the data given for the two companies, determine the business type of each one
3. Calculate the cost of goods sold of each company
Learning Objective 3
Learning Objectives 2, 4, 5
3 Company 2: $169,500
Trang 22
P16-37B Preparing an income statement and calculating unit cost for a service
company
Total Glass Company repairs chips in car windshields The company incurred the
following operating costs for the month of July 2014:
Windshield repair materials 4,800
Depreciation on building and equipment 1,200
Total Glass Company earned $23,000 in revenues for the month of July by
repairing 200 windshields All costs shown are considered to be directly related
to the repair service
Requirements
1. Prepare an income statement for the month of July
2. Compute the per unit cost of repairing one windshield
3. The manager of Total Glass Company must keep unit operating cost below $70
per windshield in order to get his bonus Did he meet the goal?
P16-38B Preparing an income statement and calculating unit cost for a
merchandising company
In 2014, Craig Gonzales opened Craig’s Pets, a small retail shop selling pet
supplies On December 31, 2014, the accounting records for Craig’s Pets
showed the following:
Inventory on December 31, 2014 $ 10,100 Inventory on January 1, 2014 15,400
Utilities Expense for the shop 3,300
Purchases of Merchandise Inventory 26,000
Requirements
1. Prepare an income statement for Craig’s Pets for the year ended December 31, 2014
2. Craig’s Pets sold 3,900 units Determine the unit cost of the merchandise sold
Learning Objectives 2, 5
2 $102.35
Learning Objectives 2, 5
1 Net income: $16,050
Trang 23
P16-39B Preparing a schedule of cost of goods manufactured and an income
statement for a manufacturing company
Organic Bones manufactures its own brand of pet chew bones At the end of December 2014, the accounting records showed the following:
Raw Materials $ 13,200 $ 7,000
other information:
Raw materials purchases $ 31,000
Trang 24
P16-40B Preparing a schedule of cost of goods manufactured and an income
statement for a manufacturing company
Certain item descriptions and amounts are missing from the monthly schedule
of cost of goods manufactured and income statement of Pinta Manufacturing
Company Fill in the blanks with the missing words and replace the Xs with the
Ending Raw Materials Inventory
Beginning Raw Materials Inventory
Purchases of Raw Materials
$ 25,000
$ X
$ X X
X (21,000)
182,000 45,000
$ X 57,000 85,000 (22,000)
PINTA MANUFACTURING COMPANY
June 30, 2014 :
X 154,000 93,000
$ 113,000 X X X
$ X
PINTA MANUFACTURING COMPANY
June 30, 2014
Trang 25Analyze the inventory accounts to determine:
1. Cost of raw materials purchased during the year
2. Cost of goods manufactured for the year
3. Cost of goods sold for the year
continuing problem
Problem P16-42 is the first problem in a sequence of problems for Davis Consulting, Inc This company was also used for the Continuing Problems in the financial accounting chapters as the business evolved from a service company to a merchandising company However, it is not neces- sary to complete those problems prior to completing P16-42.
Trang 26PowerSwitch, Inc designs and manufactures switches used in telecommunications
Serious flooding throughout North Carolina affected Power Switch’s facilities
Inventory was completely ruined, and the company’s computer system, including
all accounting records, was destroyed
Before the disaster recovery specialists clean the buildings, Stephen Plum, the
company controller, is anxious to salvage whatever records he can to support an
insurance claim for the destroyed inventory He is standing in what is left of the
accounting department with Paul Lopez, the cost accountant
“I didn’t know mud could smell so bad,” Paul says “What should I be looking
for?”
“Don’t worry about beginning inventory numbers,” responds Stephen, “we’ll
get them from last year’s annual report We need first-quarter cost data.”
“I was working on the first-quarter results just before the storm hit,” Paul says
“Look, my report’s still in my desk drawer All I can make out is that for the first
quarter, material purchases were $476,000 and direct labor, manufacturing
over-head, and total manufacturing costs to account for were $505,000, $245,000, and
$1,425,000, respectively Wait! Cost of goods available for sale was $1,340,000.”
“Great,” says Stephen “I remember that sales for the period were approximately
$1,700,000 Given our gross profit of 30%, that’s all you should need.”
Paul is not sure about that, but decides to see what he can do with this
information The beginning inventory numbers were:
• Raw Materials, $113,000
• Work-in-Process, $229,000
• Finished Goods, $154,000
Requirements
1 Prepare a schedule showing each inventory account and the increases and
decreases to each account Use it to determine the ending inventories of Raw
Materials, Work-in-Process, and Finished Goods
2 Itemize a list of the cost of inventory lost
Decision Case 16-2
The IMA’s Statement of Ethical Professional Practice can be applied to more than
just managerial accounting It is also relevant to college students
Explain at least one situation that shows how each IMA standard in Exhibit
16-3 is relevant to your experiences as a student For example, the ethical standard
of competence would suggest not cutting classes!
>
Trang 27be able to pay it back when he got his next bonus, but things stretched out, and tional loans were made Two years later, Tony’s company hit some losses, and the num-bers were looking grim Tony reminded Juan that it would not look good for his career
addi-if his CPA firm knew Juan had borrowed from a client, and so Juan changed a few numbers and signed off on clean financials for Tony’s firm This went on for three years, until one morning when Juan got a call Russo had died; his sons had gone through the books, and the whole scheme came out Juan did some prison time and lost his license, but he was repentant and made an instructional video for accounting students to warn them of the temptations they may encounter in the real world of business
>
ethical Issue 16-1
Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey Becky has just started a new job as controller for Mueller Imports, a much larger dealer for the same car manufacturer Demand for this particular make of car is exploding, and the manufacturer cannot produce enough to satisfy demand The manufacturer’s regional sales managers are each given a certain number of cars Each sales manager then decides how to divide the cars among the independently owned dealerships in the region Because of high demand for these cars, dealerships all want to receive as many cars as they can from the regional sales manager
Becky’s former employer, Shamalay Automotive, receives only about 25 cars each month Consequently, Shamalay is not very profitable
Becky is surprised to learn that her new employer, Mueller Imports, receives more than 200 cars each month Becky soon gets another surprise Every couple
of months, a local jeweler bills the dealer $5,000 for “miscellaneous services.” Franz Mueller, the owner of the dealership, personally approves payment of these invoices, noting that each invoice is a “selling expense.” From casual conversations with a salesperson, Becky learns that Mueller frequently gives Rolex watches to the manufacturer’s regional sales manager and other sales executives Before talking to anyone about this, Becky decides to work through her ethical dilemma Put your-self in Becky’s place
Requirements
1 What is the ethical issue?
2 What are your options?
3 What are the possible consequences?
4 What should you do?
>
Trang 28
team project 16-1
Search the Internet for a nearby company that also has a website Arrange an
interview for your team with a managerial accountant, a controller, or another
accounting/finance officer of the company
Requirements
Before your team conducts the interview, answer the following questions:
1 Is this a service, merchandising, or manufacturing company? What is its
primary product or service?
2 Is the primary purpose of the company’s website to provide information about
the company and its products, to sell online, or to provide financial information
for investors?
3 Are parts of the company’s website restricted so that you need password
authorization to enter? What appears to be the purpose of limiting access?
4 Does the website provide an e-mail link for contacting the company?
At the interview, begin by clarifying your team’s answers to Questions 1 through 4,
and ask the following additional questions:
5 If the company sells over the Internet, what benefits has the company derived?
Did the company perform a cost-benefit analysis before deciding to begin web
sales?
Or
If the company does not sell over the Internet, why not? Has the company
performed a cost-benefit analysis and decided not to sell over the web?
6 What is the biggest cost of operating the website?
7 Does the company make any purchases over the Internet? What percentage?
8 How has e-commerce affected the company’s managerial accounting system?
Have the managerial accountant’s responsibilities become more or less complex?
More or less interesting?
9 Does the company use web-based accounting applications, such as accounts
receivable or accounts payable?
10 Does the company use an ERP system? If so, do managers view the system as a
success? What have been the benefits? The costs?
Your team should summarize your findings in a short paper Provide any exhibits
that enhance your explanation of key items Provide proper references and a works
cited page
>
Requirements
1 Although the central character of this story worked in public accounting, please
refer to the IMA Statement of Ethical Professional Practice in Exhibit 16-3 and
discuss which of those issues are reflected in this case
2 Could Juan have removed himself from his situation? How?
Trang 29communication Activity 16-1
In 100 words or fewer, explain the difference between product costs and period costs In your explanation, explain the inventory accounts of a manufacturer
>
Trang 30
17
total costs / total number of services provided = unit cost per service
Quick check Answers
18
>
Beginning Work-in-Process Inventory
Direct Materials Used
Ending Work-in-Process Inventory
Cost of Goods Manufactured
Direct Materials Used:
Direct Labor
Manufacturing Overhead
Total Manufacturing Costs Incurred during the Year
Total Manufacturing Costs to Account For
Raw Materials Available for Use
Ending Raw Materials Inventory
Beginning Raw Materials Inventory
Purchases of Raw Materials (including Freight In)
$ 12
$ 72
$ 23 36
88 (16)
76 17
$ 5 25 30 (7)
ABC Manufacturing Company
Schedule of Cost of Goods Manufactured Year Ended December 31, 2015
(in millions)
Beginning Finished Goods Inventory
Cost of Goods Manufactured
Cost of Goods Available for Sale
Ending Finished Goods Inventory
Cost of Goods Sold
$ 8 72 80 (6)
$ 74
ABC Manufacturing Company
Schedule of Cost of Goods Sold Year Ended December 31, 2015
(in millions)
Trang 31M elinda Duncan is deep in thought Melinda
works for a regional accounting firm A
major part of the business is in the audit field, and
Melinda really enjoys the work She likes getting
out of the office and going to the clients’ locations
She thinks audits are like puzzles and finds it
chal-lenging to put the pieces together Recently her
firm has lost clients to a competitor that is charging
lower audit fees Melinda is considering the
situa-tion and has lots of quessitua-tions Does
Melinda’s company need to
lower its fees to stay
com-petitive? If the company
drops its fees, will it
remain profitable?
Melinda knows
the amount charged
for an audit has to
cover the cost of
providing the service The largest cost associated with an audit is the accountants’ salaries But the company has other salaries that have to be covered, too—for example, the salaries of the support staff at the office There are other costs involved in running the office as well, including utilities, supplies, and office equipment Before the accounting firm can make a decision about lowering the fees charged
to clients, it must first determine an accurate cost
of providing the service How can the firm determine the full cost of an audit job? Accounting firms
can use a job order
cost-ing system to track the
cost of providing each service to clients and then use the informa- tion to make pricing decisions.
17
Job Order Costing
Why Are We Losing Clients?
Trang 32What Does It Really Cost?
All companies need to know the cost of their products
and services Major CPA firms such as KPMG LLP track
the costs associated with providing services to each
client Some costs are easy to determine The
accoun-tants can record hours worked on an audit to
deter-mine the labor cost But other costs, such as support
staff salaries, office rent, and office equipment
depre-ciation, are indirect costs and cannot be easily traced
to a job This chapter shows how manufacturing and
service companies determine the cost of their products
and services
chapter outline
How do manufacturing companies
use job order and process costing
systems?
How do materials and labor costs
flow through the job order costing
system?
How do overhead costs flow through
the job order costing system?
What happens when products are
completed and sold?
How is the manufacturing overhead
account adjusted?
How do service companies use a job
order costing system?
Trang 331 Distinguish between job order costing and
process costing
costing system
rate and allocate overhead costs
goods
overhead
HoW Do ManufaCtuRIng CoMpanIes use Job oRDeR anD pRoCess CostIng systeMs?
Cost accounting systems are used to accumulate product cost information so that
managers can measure how much it costs to produce each unit of product Knowing these unit costs helps managers do the following:
• Set selling prices that will lead to profits
• Compute cost of goods sold for the income statement
• Compute the cost of inventory for the balance sheet
Remember that a manager’s primary duties include planning and controlling If
a manager knows the cost to produce each unit of product, then the manager can plan and control the cost of resources needed to create the product and deliver it to the cus-tomer A cost accounting system is a tool that managers use to help make planning and controlling decisions Exhibit 17-1 gives some examples of unit product costs managers may want to calculate
As you can see from Exhibit 17-1, cost accounting systems are not just for manufacturing companies All businesses need to know the cost of their products
Distinguish between job order
costing and process costing
L e a r n i n g o b j e c t i v e s
17
Fast food restaurant Freight service Automobile manufacturer Construction firm Accounting firm
Make a cheeseburger Transport a pound of freight for a mile Make a car
Build a house Prepare a tax return
Managers of a(n) Need to know the cost to Exhibit 17-1 | Examples of Unit Costs
Trang 34Job order Costing
Some companies manufacture batches of unique products or provide specialized services A
job order costing system accumulates costs for each unique batch, or job Accounting
firms, music studios, health-care providers, building contractors, and custom furniture
manufacturers are examples of companies that use job order costing systems As we move
to a more service-based economy and with the increased use of enterprise resource
plan-ning (ERP) systems, job order costing has become more prevalent because the software
allows companies to track costs more efficiently The benefit of knowing more detailed cost
information outweighs the cost of obtaining the information through the ERP system
process Costing
Other companies produce identical units through a series of production steps or processes
A process costing system accumulates the costs of each process needed to complete the
product For example, a soft drink company’s processes may include mixing, bottling, and
packaging A surfboard manufacturing company’s processes may include sanding,
paint-ing, waxpaint-ing, and packaging A medical equipment manufacturer of a blood glucose meter
may have processes that include soldering, assembling, and testing Process costing is used
primarily by companies that produce large quantities of similar products
Both job order and process costing systems use a four-step method to track
prod-uct costs: accumulate, assign, allocate, and adjust Look for the four steps as we track the
product costs through the inventory accounts on the balance sheet to Cost of Goods
Sold on the income statement
Job order Costing system
An accounting system that accumulates costs by job Used by companies that manufacture unique products or provide specialized services.
Job
The production of a unique product or specialized service May be one unit or
a batch of units.
process Costing system
An accounting system that accumulates costs by process Used by companies that manufacture identical units through a series of uniform production steps or processes.
Would the following companies most likely use a job order costing system or a
process costing system?
For more practice, see Short Exercise S17-1. My Accounting Lab
HoW Do MateRIaLs anD LaboR Costs fLoW
tHRougH tHe Job oRDeR CostIng systeM?
A job order costing system tracks costs as raw materials move from the storeroom to the
production floor, where they are converted into finished products Let’s consider how a
manufacturer uses job order costing To illustrate the process, we will use our fictitious
com-pany, Smart Touch Learning Remember that Smart Touch Learning manufactures touch
screen tablet computers that are preloaded with its e-learning software programs Most
customers order a batch of customized tablets, and the company considers each customer
order as a separate job (batch) Smart Touch Learning uses a job cost record to document
the product costs for each job: direct materials, direct labor, and manufacturing overhead
Learning Objective 2
Record materials and labor costs
in a job order costing system
Job Cost Record
A document that shows the direct materials, direct labor, and manufacturing overhead costs for an individual job.
Trang 35Exhibit 17-2 indicates that Smart Touch Learning worked on three jobs during the accounting period: Job 27, Job 28, and Job 29 Jobs 27 and 28 were completed, and their costs were transferred from WIP to FG Job 27 was delivered to the customer, so those costs were transferred from FG to COGS.
The ending balance in WIP is the cost of Job 29, the only job that is not complete and still in-process at the end of the period The ending balance in FG is the cost of Job
28, the only job that was completed but still not delivered to the customer The ing balance in COGS is the cost of Job 27, the only job completed and sold during the period These balances can be verified by comparing the balances in the general ledger accounts with the job cost records
end-The next sections of the chapter show the cost flow in more detail We will use Job
27 as an example On December 31, 2015, Smart Touch Learning had the following inventory balances:
This amount is the job’s
Cost of Goods Sold (COGS).
Product costs for each job are recorded on individual job cost records.
Job Cost Record
Exhibit 17-2 | Flow of Product Costs in Job Order Costing
Finished Goods Inventory Work-in-Process Inventory
Materials
There are two aspects to accounting for raw materials: purchasing materials and using materials in production Because raw materials do not have to be used immediately when purchased and can be stored for later use, materials purchased and materials used
The company starts the job cost record when work begins on the job As Smart Touch Learning incurs costs, the company adds costs to the job cost record, and the costs are added to the Work-in-Process Inventory (WIP) When Smart Touch Learning finishes a job, the company totals the costs and transfers the costs from Work-in-Process Inventory to Finished Goods Inventory (FG) The costs transferred to Finished Goods Inventory are called Cost of Goods Manufactured
When the job’s units are sold, the costing system moves the costs from Finished Goods Inventory, an asset, to Cost of Goods Sold (COGS), an expense Exhibit 17-2 diagrams the flow of costs for three jobs at Smart Touch Learning
Trang 36in production are usually two different amounts This is what creates an ending balance
in the Raw Materials Inventory account Let’s look at the recording of both activities—
purchasing and using materials
purchasing Materials
Transaction 1—Materials Purchased: During 2016, Smart Touch Learning purchased
raw materials of $367,000 on account This is a product cost that accumulates in the
Raw Materials Inventory account To simplify the recording process, we are recording
the materials purchases as a summary journal entry for the year, rather than showing
each individual purchase The purchase is recorded as follows:
Raw Materials Inventory is a general ledger account Smart Touch Learning also
uses a subsidiary ledger for raw materials A subsidiary ledger contains the details of a
general ledger account, and the sum of the subsidiary ledger records equals the balance
in the general ledger account
The raw materials subsidiary ledger includes a separate record for each type of
material, so there is a separate page for the batteries, processors, cases, and other
materi-als used in producing the tablets The subsidiary ledger records show the raw materimateri-als
purchased (received), used in production (issued), and balance on hand (balance) at all
times The use of a subsidiary ledger allows for better control of inventory because it
helps track each type of material used in production Exhibit 17-3 shows the subsidiary
ledger of one type of battery that Smart Touch Learning uses The balance of the Raw
Materials Inventory account in the general ledger should always equal the sum of the
balances in the raw materials subsidiary ledger
RAW MATERIALS SUBSIDIARY LEDGER
Date
Received
Item No.
Balance Issued
Mat.
Req.
No Units Unit Cost Total Cost Units Cost Unit Total Cost
B-103
Exhibit 17-3 | Raw Materials Subsidiary Ledger
> Why would the company use
a subsidiary ledger for raw materials?
Trang 37using Materials
Materials Used, Job 27: Smart Touch Learning started Job 27 in 2016 On January 14, the production team requested materials for the job Exhibit 17-4 illustrates the mate- rials requisition for additional batteries—the request to transfer raw materials to the production floor Note that the subsidiary ledger in Exhibit 17-3 records the materials requisition number (342) along with the number of units requisitioned and their cost.When the raw materials are issued to the production floor, the transfer is recorded
in the raw materials subsidiary ledger, as shown in Exhibit 17-3 When they are received
on the production floor, they are recorded on the job cost record Exhibit 17-5 shows the job cost record for Job 27 after Materials Requisition 342 has been recorded
Materials Requisition
Request for the transfer of raw
materials to the production floor.
Item
$825
$55 15
Quantity Unit Cost Total Cost
Exhibit 17-4 | Materials Requisition
JOB COST RECORD
Direct Materials
Requisition Number
Labor Time Record Number
Direct Materials
Rate Date
Job Number
Direct Labor
Customer Job Description
Direct Labor Manufacturing Overhead
27 Central College Bookstore
15 tablets with accounting e-learning software
Exhibit 17-5 | Job Cost Record—Direct Materials Recorded
Trang 38The materials added to Job 27 from Materials Requisition 342 are considered
direct materials because the batteries can be easily and cost-effectively traced directly
to the finished product The materials cost has been assigned to Job 27 and recorded
as a decrease on the raw materials subsidiary ledger and as an increase on the job
cost record However, Smart Touch Learning will not complete a journal entry at
this time but will wait and record a summary journal entry at the end of the period
for all materials used
Transaction 2—Materials Used: Smart Touch Learning worked on many jobs during
the year in addition to Job 27 In 2016, the company used materials costing $355,000,
including batteries, processors, and cases This amount includes the materials used in Job
27 as well as all other jobs the company worked on during the year These materials can
be traced to specific jobs and are all direct materials The cost of direct materials is
trans-ferred out of Raw Materials Inventory and is assigned to Work-in-Process Inventory The
individual job cost records would indicate the amount of direct materials cost assigned to
each job
By contrast, the company used materials costing $17,000 that are difficult to
trace to a specific job These costs are indirect materials The cost of indirect materials
is transferred out of the Raw Materials Inventory account and is accumulated in the
Manufacturing Overhead account The following summary journal entry records the
issuance of the materials used in production during the year:
Manufacturing Overhead (indirect materials) Raw Materials Inventory
Work-in-Process Inventory (direct materials) Trans 2
372,000
Accounts and Explanation Date
355,000 17,000
of $17,000 This is offset by the increase in Manufacturing Overhead that decreases equity Therefore, total assets decrease
by $17,000 and total equity decreases by $17,000
Trang 39Manufacturing Overhead is a temporary account used to accumulate indirect
pro-duction costs during the accounting period Because it is a temporary account, it is sified as an equity account We will adjust Manufacturing Overhead later in the chapter.For both direct materials and indirect materials, the production team completes materials requisitions to request the transfer of materials to the production floor Because we showed a summary journal entry for these requisitions, we are not showing each document Also, these requisitions are often in electronic form rather than on pa-per Samples of these documents are shown for illustrative purposes only
clas-Labor
Direct Labor Incurred, Job 27: Most companies use electronic labor/time records
to streamline the labor tracking costs Employees use ID cards to swipe and enter job information The time is automatically added to the appropriate job cost record If a manual system is used, each employee completes a labor time record that indicates the amount of time spent on each job The labor time record shows that one employee spent 5 hours on Job 27 The employee earns $18 per hour The system then charged
$90 to the job (5 hours × $18 per hour)
Exhibit 17-6 shows how Smart Touch Learning adds the direct labor cost to the job cost record for Job 27
The employee’s labor is considered direct labor, so the cost is assigned to the job
The cost is added to the job cost record Smart Touch Learning will make summary journal entries for the labor costs each pay period
Transaction 3—Labor Costs Incurred: During 2016, Smart Touch Learning incurred total labor costs of $197,000, of which $169,000 was direct labor and $28,000 was indirect labor These amounts include all the direct labor costs for Job 27 that we have been working with plus all the company’s other jobs worked on during the year Indirect
Labor time Record
A record used to assign direct labor
cost to specific jobs.
JOB COST RECORD
Direct Materials
Requisition Number
Labor Time Record Number
Direct Materials
Rate Date
Job Number
Direct Labor
Customer Job Description
Direct Labor Manufacturing Overhead
27 Central College Bookstore
15 tablets with accounting e-learning software
Exhibit 17-6 | Job Cost Record—Direct Labor Recorded
Trang 40labor is labor costs for employees working in the factory, but not directly on the
prod-ucts, including employees in supervision, maintenance, and janitorial positions
The direct labor costs are assigned to individual jobs and recorded on the job cost
records The total direct labor amount is debited to Work-in-Process Inventory The
indirect labor costs are accumulated in Manufacturing Overhead This is the same
treat-ment as the direct and indirect materials illustrated in Transaction 2
We have now accounted for the direct product costs; it is time to take a closer look
at the indirect product costs
Manufacturing Overhead (indirect labor)
Manufacturing Overhead
Trans 3 28,000 Trans 2 17,000
Manufacturing Overhead
Trans 3 28,000 Trans 2 17,000
MOH ↑ Wages
Payable ↑
+ +
L
Remember that an increase in Manufacturing Overhead causes
a decrease in equity
Record the following journal entries for Smith Company:
6 Purchased materials on account, $10,000.
7 Used $6,000 in direct materials and $500 in indirect materials in production.
8 Incurred $8,000 in labor costs, of which 80% was direct labor.
Check your answers at the end of the chapter.
Try It!
>
For more practice, see Short Exercises S17-2 through S17-5. My Accounting Lab