Managerial Accounting
Managerial Accounting
Managerial Accounting
6. The management function of organizing and directing is mainly concerned with setting
goals and objectives for the entity.
Ans: F,
8. Controlling is the process of determining whether planned goals are being met.
Ans: T, Internal Controls
10. Both direct labor cost and indirect labor cost are product costs.
Ans: T,
11. Manufacturing costs that cannot be classified as direct materials or direct labor are
classified as manufacturing overhead.
Ans: T,
12. Raw materials are equal to direct materials minus indirect materials.
Ans: F,
13. Raw materials that can be conveniently and directly associated with a finished product are
called materials overhead.
Ans: F,
14. The total cost of a finished product does not generally contain equal amounts of materials,
labor, and overhead costs.
Ans: T,
15. Direct materials costs and indirect materials costs are manufacturing overhead.
Ans: F,
17. Indirect materials and indirect labor are both inventoriable costs.
Ans: T,
18. Direct materials and direct labor are the only product costs.
Ans: F,
19. Total period costs are deducted from total cost of work in process to calculate cost of
goods manufactured.
Ans: F,
21. Ending finished goods inventory appears on both the balance sheet and the income
statement of a manufacturing company.
Ans: T, Reporting,
22. The beginning work in process inventory appears on both the balance sheet and the cost
of goods manufactured schedule of a manufacturing company.
Ans: F, Reporting,
23. In calculating gross profit for a manufacturing company, the cost of goods manufactured is
deducted from net sales.
Ans: F, Reporting,
24. Finished goods inventory does not appear on a cost of goods manufactured schedule.
Ans: T, Reporting,
25. If the ending work in process inventory is greater than the beginning work in process
inventory, then the cost of goods manufactured will be less than total manufacturing costs
for the period.
Ans: T,
28. The balanced scorecard approach attempts to maintain as little inventory on hand as
possible.
Ans: F, Risk Analysis,
29. The supply chain is all the activities associated with providing a product or service.
Ans: F, None, Global Business
30. Many companies have significantly lowered inventory levels and costs using just-in-time
inventory methods.
Ans: T,
31. Managerial accounting is primarily concerned with managers and external users.
Ans: F, Business Economics
32. Planning involves coordinating the diverse activities and human resources of a company
to produce a smooth running operation.
Ans: F, Business Economics
33. When the physical association of raw materials with the finished product is too small to
trace in terms of cost, they are usually classified as indirect materials.
Ans: T, None,
35. Direct materials become a cost of the finished goods manufactured when they are
acquired, not when they are used.
Ans: F, None,
36. The sum of the direct materials costs, direct labor costs, and beginning work in process is
the total manufacturing costs for the year.
Ans: F, Reporting,
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.
Ans: F, Reporting,
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 law.
Ans: a, Reporting,
51. Which of the following statements about internal reports is not true?
a. The content of internal reports may extend beyond the double-entry accounting
system.
b. Internal reports may show all amounts at market values.
c. Internal reports may discuss prospective events.
d. Most internal reports are summarized rather than detailed.
Ans: d, Reporting,
52. In an analogous sense, external user is to internal user as generally accepted accounting
principles are to
a. timely.
b. special-purpose.
c. relevance to decision.
d. SEC.
Ans: c, Reporting,
53. Internal reports are generally
a. aggregated.
b. detailed.
c. regulated.
d. unreliable.
Ans: b, Reporting,
55. What activities and responsibilities are not associated with management's functions?
a. Planning
b. Accountability
c. Controlling
d. Directing
Ans: b, Reporting,
61. In determining whether planned goals are being met, a manager is performing the function
of
a. planning.
b. follow-up.
c. directing.
d. controlling.
Ans: d,
65. 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.
Ans: d, None,
66. 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
Ans: b, Reporting,
69. 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
Ans: c, None,
70. 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.
Ans: b, None,
75. 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.
Ans: c, Reporting,
77. 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.
Ans: c, Reporting,
78. 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
Ans: b, Reporting,
81. 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.
Ans: d, Reporting,
84. 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
Ans: d, Difficulty: Medium, Min: 2,
90. For inventoriable costs to become expenses under the matching principle,
a. the product must be finished and in stock.
b. the product must be expensed based on its percentage-of-completion.
c. the product to which they attach must be sold.
d. all accounts payable must be settled.
Ans: c, Reporting,
97. Kushman Combines, Inc. has $20,000 of ending finished goods inventory as of December
31, 2011. If beginning finished goods inventory was $10,000 and cost of goods sold was
$40,000, how much would Kushman report for cost of goods manufactured?
a. $45,000
b. $10,000
c. $50,000
d. $30,000
Ans: c, Difficulty: Medium, Min: 3, Reporting,
99. If the amount of "Cost of goods manufactured" during a period exceeds the amount of
"Total manufacturing costs" for the period, then
a. ending work in process inventory is greater than or equal to the amount of the
beginning work in process inventory.
b. ending work in process is greater than the amount of the beginning work in process
inventory.
c. ending work in process is equal to the cost of goods manufactured.
d. ending work in process is less than the amount of the beginning work in process
inventory.
Ans: d, Difficulty: Medium, Min: 2, Reporting,
100. On the 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.
Ans: b, Reporting,
101. On the costs of goods manufactured schedule, the item raw materials inventory (ending)
appears 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. subtraction from raw materials purchases.
Ans: c, Reporting,
102. Dolan Manufacturing Company's accounting records reflect the following inventories:
Dec. 31, 2011 Dec. 31, 2010
Raw materials inventory $310,000 $260,000
Work in process inventory 300,000 160,000
Finished goods inventory 190,000 150,000
During 2011, $400,000 of raw materials were purchased, direct labor costs amounted to
$500,000, and manufacturing overhead incurred was $480,000.
The total raw materials available for use during 2011 for Dolan Manufacturing Company is
a. $710,000.
b. $260,000.
c. $350,000.
d. $660,000.
Ans: d, Min: 3, Business Economics
103. Dolan Manufacturing Company's accounting records reflect the following inventories:
Dec. 31, 2011 Dec. 31, 2010
Raw materials inventory $310,000 $260,000
Work in process inventory 300,000 160,000
Finished goods inventory 190,000 150,000
During 2011, $400,000 of raw materials were purchased, direct labor costs amounted to
$500,000, and manufacturing overhead incurred was $480,000.
Dolan Manufacturing Company's total manufacturing costs incurred in 2011 amounted to
a. $1,330,000.
b. $1,290,000.
c. $1,190,000.
d. $1,380,000.
Ans: a, Min: 3, Business Economics
104. Dolan Manufacturing Company's accounting records reflect the following inventories:
Dec. 31, 2011 Dec. 31, 2010
Raw materials inventory $310,000 $260,000
Work in process inventory 300,000 160,000
Finished goods inventory 190,000 150,000
During 2011, $400,000 of raw materials were purchased, direct labor costs amounted to
$500,000, and manufacturing overhead incurred was $480,000.
MC 104. (Cont.)
If Dolan Manufacturing Company's cost of goods manufactured for 2011 amounted to
$1,190,000, its cost of goods sold for the year is
a. $1,300,000.
b. $1,050,000.
c. $1,150,000.
d. $1,230,000.
Ans: c, Min: 3, Business Economics
106. Worth Manufacturing Company reported the following year-end information: beginning
work in process inventory, $180,000; cost of goods manufactured, $716,000; beginning
finished goods inventory, $252,000; ending work in process inventory, $220,000; and
ending finished goods inventory, $264,000. Worth Manufacturing Company's cost of
goods sold for the year is
a. $704,000.
b. $728,000.
c. $676,000.
d. $452,000.
Ans: a, Min: 3, Business Economics
During 2011, Benson purchased $960,000 of raw materials, incurred direct labor costs of
$200,000, and incurred manufacturing overhead totaling $128,000.
How much raw materials were transferred to production during 2011 for Benson
Manufacturing?
a. $1,192,000
b. $976,000
c. $960,000
d. $944,000
Ans: b,
109. Benson Manufacturing Inc.'s accounting records reflect the following inventories:
Dec. 31, 2010 Dec. 31, 2011
Raw materials inventory $ 80,000 $ 64,000
Work in process inventory 104,000 116,000
Finished goods inventory 100,000 92,000
During 2011, Benson purchased $860,000 of raw materials, incurred direct labor costs of
$200,000, and incurred manufacturing overhead totaling $128,000.
How much is total manufacturing costs incurred during 2011 for Benson?
a. $1,192,000
b. $1,204,000
c. $1,188,000
d. $1,200,000
Ans: b,
110. Benson Manufacturing Inc.'s accounting records reflect the following inventories:
Dec. 31, 2010 Dec. 31, 2011
Raw materials inventory $ 80,000 $ 64,000
Work in process inventory 104,000 116,000
Finished goods inventory 100,000 92,000
During 2011, Benson purchased $960,000 of raw materials, incurred direct labor costs of
$200,000, and incurred manufacturing overhead totaling $128,000.
Assume Benson Manufacturing’s cost of goods manufactured for 2011 amounted to
$1,160,000. How much would it report as cost of goods sold for the year?
a. $1,168,000
b. $1,200,000
c. $1,260,000
d. $1,152,000
Ans: a, Reporting,
111. Walker Manufacturing 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 730,000
Direct labor 240,000
Manufacturing overhead 100,000
How much is Walker Manufacturing’s cost of goods manufactured for the year?
a. $734,000
b. $1,074,000
c. $1,070,000
d. $1,078,000
Ans: c,
112. Ogleby Manufacturing Inc.'s accounting records reflect the following inventories:
Dec. 31, 2010 Dec. 31, 2011
Raw materials inventory $120,000 $ 96,000
Work in process inventory 156,000 174,000
Finished goods inventory 150,000 138,000
During 2011, Ogleby purchased $940,000 of raw materials, incurred direct labor costs of
$150,000, and incurred manufacturing overhead totaling $192,000.
How much is total manufacturing costs incurred during 2011 for Ogleby?
a. $1,288,000
b. $1,306,000
c. $1,282,000
d. $1,300,000
Ans: b,
113. Ogleby Manufacturing Inc.'s accounting records reflect the following inventories:
Dec. 31, 2010 Dec. 31, 2011
Raw materials inventory $120,000 $ 96,000
Work in process inventory 156,000 174,000
Finished goods inventory 150,000 138,000
During 2011, Ogleby purchased $940,000 of raw materials, incurred direct labor costs of
$150,000, and incurred manufacturing overhead totaling $192,000.
How much would Ogleby Manufacturing report as cost of goods manufactured for 2011?
a. $1,264,000
b. $1,324,000
c. $1,318,000
d. $1,288,000
Ans: d, Reporting,
114. Wasson Manufacturing 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 180,000
Manufacturing overhead 75,000
How much is Wasson Manufacturing’s total cost of work in process for the year?
a. $563,000
b. $818,000
c. $815,000
d. $853,000
Ans: d, Reporting,
115. Edmiston Manufacturing Company reported the following year-end information: beginning
work in process inventory, $80,000; cost of goods manufactured, $880,000; beginning
finished goods inventory, $50,000; ending work in process inventory, $70,000; and ending
finished goods inventory, $40,000. How much is Edmiston’s cost of goods sold for the
year?
a. $880,000
b. $890,000
c. $870,000
d. $900,000
Ans: b, Difficulty: Medium, Reporting,
116. Using the following information, compute the direct materials used.
Raw materials inventory, January 1 $ 20,000
Raw materials inventory, December 31 40,000
Work in process, January 1 18,000
Work in process, December 31 12,000
Finished goods, January 1 40,000
Finished goods, December 31 32,000
Raw materials purchases 1,100,000
Direct labor 560,000
Factory utilities 150,000
Indirect labor 50,000
Factory depreciation 400,000
Operating expenses 420,000
a. $1,160,000.
b. $1,120,000.
c. $1,100,000.
d. $1,080,000.
Ans: d,
117. Assuming that the direct materials used is $1,100,000, compute the total manufacturing
costs using the following information.
Raw materials inventory, January 1 $ 20,000
Raw materials inventory, December 31 40,000
Work in process, January 1 18,000
Work in process, December 31 12,000
Finished goods, January 1 40,000
Finished goods, December 31 32,000
Raw materials purchases 1,100,000
Direct labor 560,000
Factory utilities 150,000
Indirect labor 50,000
Factory depreciation 400,000
Operating expenses 420,000
a. $2,260,000.
b. $2,254,000.
c. $2,060,000.
d. $2,680,000.
Ans: a,
118. Using $2,200,000 as the total manufacturing costs, compute the cost of goods
manufactured using the following information.
Raw materials inventory, January 1 $ 20,000
Raw materials inventory, December 31 40,000
Work in process, January 1 18,000
Work in process, December 31 12,000
Finished goods, January 1 40,000
Finished goods, December 31 32,000
Raw materials purchases 1,100,000
Direct labor 560,000
Factory utilities 150,000
Indirect labor 50,000
Factory depreciation 400,000
Operating expenses 420,000
a. $2,192,000.
b. $2,194,000.
c. $2,206,000.
d. $2,208,000.
Ans: c,
119. Using $2,240,000 as the cost of goods manufactured, compute the cost of goods sold
using the following information.
Raw materials inventory, January 1 $ 20,000
Raw materials inventory, December 31 40,000
Work in process, January 1 18,000
Work in process, December 31 12,000
Finished goods, January 1 40,000
Finished goods, December 31 32,000
Raw materials purchases 1,100,000
Direct labor 560,000
Factory utilities 150,000
Indirect labor 50,000
Factory depreciation 400,000
Operating expenses 420,000
a. $2,246,000.
b. $2,208,000.
c. $2,232,000.
d. $2,248,000.
Ans: d,
120. Using the following information, compute the cost of direct materials used.
Raw materials inventory, January 1 $ 30,000
Raw materials inventory, December 31 60,000
Work in process, January 1 27,000
Work in process, December 31 18,000
Finished goods, January 1 60,000
Finished goods, December 31 48,000
Raw materials purchases 1,300,000
Direct labor 690,000
Factory utilities 225,000
Indirect labor 75,000
Factory depreciation 500,000
Operating expenses 630,000
a. $1,390,000.
b. $1,330,000.
c. $1,300,000.
d. $1,270,000.
Ans: d,
121. Assuming the cost of direct materials used is $1,300,000, compute the total manufacturing
costs using the information below.
Raw materials inventory, January 1 $ 30,000
Raw materials inventory, December 31 60,000
Work in process, January 1 27,000
Work in process, December 31 18,000
Finished goods, January 1 60,000
Finished goods, December 31 48,000
Raw materials purchases 1,300,000
Direct labor 690,000
Factory utilities 225,000
Indirect labor 75,000
Factory depreciation 500,000
Operating expenses 630,000
a. $2,790,000.
b. $2,781,000.
c. $2,490,000.
d. $3,420,000.
Ans: a,
122. Assuming that the total manufacturing costs are $2,700,000, compute the cost of goods
manufactured using the information below.
Raw materials inventory, January 1 $ 30,000
Raw materials inventory, December 31 60,000
Work in process, January 1 27,000
Work in process, December 31 18,000
Finished goods, January 1 60,000
Finished goods, December 31 48,000
Raw materials purchases 1,300,000
Direct labor 690,000
Factory utilities 225,000
Indirect labor 75,000
Factory depreciation 500,000
Operating expenses 630,000
a. $2,688,000.
b. $2,691,000.
c. $2,709,000.
d. $2,712,000.
Ans: c,
123. Assuming that the cost of goods manufactured is $2,760,000 compute the cost of goods
sold using the following information.
Raw materials inventory, January 1 $ 30,000
Raw materials inventory, December 31 60,000
Work in process, January 1 27,000
Work in process, December 31 18,000
Finished goods, January 1 60,000
Finished goods, December 31 48,000
Raw materials purchases 1,300,000
Direct labor 690,000
Factory utilities 225,000
Indirect labor 75,000
Factory depreciation 500,000
Operating expenses 630,000
a. $2,769,000.
b. $2,712,000.
c. $2,748,000.
d. $2,772,000.
Ans: d,
125. Given the following data for Mehring Company, compute (A) total manufacturing costs and
(B) cost of goods manufactured:
Direct materials used $180,000 Beginning work in process $30,000
Direct labor 150,000 Ending work in process 15,000
Manufacturing overhead 225,000 Beginning finished goods 38,000
Operating expenses 263,000 Ending finished goods 23,000
(A) (B)
a. $540,000 $570,000
b. $555,000 $540,000
c. $555,000 $570,000
d. $570,000 $585,000
Ans: c,
126. Penner Company reported total manufacturing costs of $205,000, manufacturing
overhead totaling $39,000, and direct materials totaling $48,000. How much is direct
labor cost?
a. Cannot be determined from the information provided.
b. $292,000
c. $87,000
d. $118,000
Ans: d, Difficulty: Medium, Min: 3,
127. Given the following data for Glennon Company, compute (A) total manufacturing costs
and (B) costs of goods manufactured:
Direct materials used $240,000 Beginning work in process $40,000
Direct labor 200,000 Ending work in process 20,000
Manufacturing overhead 300,000 Beginning finished goods 50,000
Operating expenses 350,000 Ending finished goods 30,000
(A) (B)
a. $720,000 $760,000
b. $740,000 $720,000
c. $740,000 $760,000
d. $760,000 $780,000
Ans: c, Difficulty: Medium,
128. Barton Company has beginning work in process inventory of $144,000 and total
manufacturing costs of $636,000. If cost of goods manufactured is $640,000, what is the
cost of the ending work in process inventory?
a. $120,000.
b. $148,000.
c. $160,000.
d. $140,000.
Ans: d, Difficulty: Medium,
129. Gammil Company has beginning and ending raw materials inventories of $96,000 and
$120,000, respectively. If direct materials used were $390,000, what was the cost of raw
materials purchased?
a. $390,000.
b. $420,000.
c. $366,000.
d. $414,000.
Ans: d, Difficulty: Medium, Min: 3,
130. Molina Company has beginning and ending work in process inventories of $130,000 and
$145,000 respectively. If total manufacturing costs are $620,000, what is the total cost of
goods manufactured?
a. $750,000.
b. $765,000.
c. $605,000.
d. $635,000.
Ans: c, Difficulty: Medium, Min: 3, Reporting,
131. Costas Company has beginning and ending raw materials inventories of $64,000 and
$80,000, respectively. If direct materials used were $260,000, what was the cost of raw
materials purchased?
a. $260,000.
b. $280,000.
c. $244,000.
d. $276,000.
Ans: d, Difficulty: Medium, Min: 3,
132. Wood Company has beginning work in process inventory of $108,000 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. $90,000.
b. $111,000.
c. $120,000.
d. $105,000.
Ans: d, Difficulty: Medium, Min: 3,
133. Given the following data for Harder Company, compute cost of goods manufactured:
Direct materials used $120,000 Beginning work in process $20,000
Direct labor 100,000 Ending work in process 10,000
Manufacturing overhead 150,000 Beginning finished goods 25,000
Operating expenses 175,000 Ending finished goods 15,000
a. $360,000
b. $370,000
c. $380,000
d. $390,000
Ans: c, Difficulty: Medium, Min: 3,
134. 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
Ans: c, Reporting,
135. The equivalent of finished goods inventory for a merchandising firm is referred to as
a. purchases.
b. cost of goods purchased.
c. merchandise inventory.
d. raw materials inventory.
Ans: c, Reporting,
136. 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 a total quality management system.
Ans: c, Reporting,
137. What term describes all activities associated with providing a product or service?
a. The manufacturing chain
b. The product chain
c. The supply chain
d. The value chain
Ans: d, None,
138. Which one of the following managerial accounting approaches attempts to allocate
manufacturing overhead in a more meaningful fashion?
a. Balanced scorecard
b. Just-in-time inventory
c. Activity-based costing
d. Total-quality management
Ans: c, Performance Measurement
140. Which one of the following characteristics would likely be associated with a just-in-time
inventory method?
a. Ending inventory of work in process 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
Ans: c, Project Management, Business Economics
141. Some companies implement systems to reduce defects in finished products with the goal
of achieving zero defects. What are these systems called?
a. Activity-based costing systems
b. Balanced scorecard systems
c. Value chain systems
d. Total quality management systems
Ans: d, Project Management, Business Economics
142. 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.
Ans: d,
143. The function that pertains to keeping the activities of the enterprise on track is
a. planning.
b. directing.
c. controlling.
d. accounting.
Ans: c, AICPA BB: Resource Management, Project Management, Performance Measurement
145. 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
Ans: b, Reporting,
146. 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.
Ans: b, Reporting,
147. If the cost of goods manufactured is less than the 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.
Ans: c, None, Business Economics
148. The principle difference between a merchandising and a manufacturing income statement
is the
a. cost of goods sold section.
b. extraordinary item section.
c. operating expense section.
d. revenue section.
Ans: a, Reporting,
149. If the total manufacturing costs are greater than the 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.
Ans: a, None, Business Economics
150. 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.
Ans: c, None, Business Economics
151. 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.
Ans: c, Reporting,
Answers to Multiple Choice Questions
Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
38. d 55. b 72. a 89. c 106. a 123. d 140. c
39. c 56. c 73. a 90. c 107. b 124. d 141. d
40. b 57. d 74. b 91. c 108. b 125. c 142. d
41. a 58. a 75. c 92. d 109. b 126. d 143. c
42. a 59. c 76. c 93. c 110. a 127. c 144. a
43. a 60. c 77. c 94. b 111. c 128. d 145. b
44. b 61. d 78. b 95. d 112. b 129. d 146. b
45. d 62. c 79. a 96. c 113. d 130. c 147. c
46. b 63. c 80. c 97. c 114. d 131. d 148. a
47. d 64. a 81. d 98. c 115. b 132. d 149. a
48. b 65. d 82. d 99. d 116. d 133. c 150. c
49. c 66. b 83. a 100. b 117. a 134. c 151. c
50. c 67. d 84. d 101. c 118. c 135. c
51. d 68. d 85. d 102. d 119. d 136. c
52. c 69. c 86. b 103. a 120. d 137. d
53. b 70. b 87. b 104. c 121. a 138. c
54. c 71. c 88. a 105. a 122. c 139. b
BRIEF EXERCISES
BE 152
Presented below are Truck Company’s monthly manufacturing cost data related to its personal
computer products.
(a) Taxes on factory building $820,000
(b) Raw materials 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.
Product Costs
Direct Materials Direct Labor Factory Overhead
(a)
(b)
(c)
(d)
Ans: N/A, Difficulty: Medium, Min: 3, None, Business Economics
Solution 152 (3 min.)
Product Costs
Direct Materials Direct Labor Factory Overhead
(a) X
(b) X
(c) X
(d) X
BE 153
Determine whether each of the following costs should be classified as direct materials (DM),
direct labor (DL), or manufacturing overhead (MO).
a. ____ Depreciation on factory equipment
b. ____ Table legs used in manufacturing tables
c. ____ Wages paid to assembly line workers
d. ____ Factory rent
Ans: N/A, Min: 2, None, Business Economics
BE 154
Indicate whether each of the following costs of a pencil manufacturer would be classified as direct
materials (DM), direct labor (DL), or manufacturing overhead (MO).
a. ____ Depreciation of pencil painting machinery
b. ____ Lead inserted into pencils
c. ____ Factory utilities
d. ____ Wages of assembly line worker
e. ____ Salary of supervisor
f. ____ Factory machinery maintenance
g. ____ Wood
h. ____ Eraser compound
Ans: N/A, Min: 4, None, Business Economics
Solution 154 (4 min.)
a. MO
b. DM
c. MO
d. DL
e. MO
f. MO
g. DM
h. DM
BE 155
Presented below are Cricket Company’s monthly manufacturing cost data related to its personal
computer products.
a. Hard drives and memory sticks $30,000
b. Wages to assemble equipment $65,000
c. Insurance on manufacturing building $41,000
d. Wages for factory supervisors $64,000
Instructions
Enter each cost item in the following table, placing an ‘X’ under the appropriate headings.
Product Costs
Direct Materials Direct Labor Factory Overhead
a.
b.
c.
d.
Ans: N/A, Difficulty: Medium, Min: 2, None, Business Economics
BE 157
Criba Manufacturing Company has the following data: direct labor $530,000, direct materials
used $421,000, total manufacturing overhead $206,000, and beginning work in process $47,000.
Instructions
Compute (a) total manufacturing costs and (b) total cost of work in process.
Ans: N/A, Difficulty: Medium, Business Economics
BE 158
Presented below are incomplete 2011 manufacturing cost data for Swartnez Corporation.
Direct Materials Used Direct Labor Factory Overhead Total Manufacturing Costs
(a) $ 17,000 $42,000 ? $ 83,000
BE 159
Presented below are incomplete 2011 manufacturing cost data for Supreme Corporation.
Direct Materials Used Direct Labor Factory Overhead Total Manufacturing Costs
(a) $48,000 $72,000 ? $164,000
Instructions
Determine the missing amounts.
Ans: N/A, Difficulty: Medium, Min: 4, Business Economics
Direct Materials Used Direct Labor Factory Overhead Total Manufacturing Costs
(a) $48,000 $72,000 $44,000 $164,000
BE 160
Raynor Manufacturing Company has the following data:
Direct labor $56,000
Direct materials used 84,000
Total manufacturing overhead 60,000
Ending work in process 30,000
Beginning work in process 45,000
BE 160. (Cont.)
Instructions
Compute (a) total manufacturing costs and (b) cost of goods manufactured.
Ans: N/A, Difficulty: Medium, Business Economics
BE 161
In alphabetical order below are current asset items for Sudler Company as of December 31,
2011. Prepare the current assets section of the company’s balance sheet as of the same date.
EXERCISES
Ex. 162
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.
Ex. 162. (Cont.)
____ 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
Ans: N/A, Min: 7, Reporting,
Ex. 163
Determine whether each of the following is classified as:
DM: Direct materials
DL: Direct labor
MO: Manufacturing overhead
Instructions
Classify the above items into the following categories:
DM — Direct Materials
DL — Direct Labor
MO — Manufacturing Overhead
Ans: N/A, Min: 8, None,
Ex. 165
For each item, identify all applicable cost labels. Use the following code in your answer:
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 ________
Ans: N/A, Min: 6, None,
Solution 165 (6–9 min.)
a. Advertising 2
b. Direct materials used 1
c. Sales salaries 2
d. Indirect factory labor 1
e. Repairs to office equipment 2
f. Factory manager's salary 1
g. Direct labor 1
h. Indirect materials 1
Ex. 166
Kennedy Company reports the following costs and expenses in May.
Instructions
From the information, determine the total amount of:
(a) Manufacturing overhead.
(b) Product costs.
(c) Period costs.
Ans: N/A, 4, Min: 12, Business Economics
Ex. 167
Kwik Delivery Service reports the following costs and expenses in June 2011.
Instructions
Determine the total amount of (a) delivery service (product) costs and (b) period costs.
Ans: N/A, Min: 10, Business Economics
Pr = Product cost
Pe = Period cost
Ex. 169
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. 169. (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.
Ans: N/A, Min: 10, None,
Ex. 170
Presented below are incomplete 2011 manufacturing cost data for Tardy Corporation.
Instructions
Determine the missing amounts.
Ans: N/A, 6, Difficulty: Medium, Min: 6, Business Economics
Solution 170 (6 min.)
Total Work in Work in Cost of
Direct Materials Direct Manufacturing Manufacturing Process Process Goods
Used Labor Overhead Costs (1/1) (12/31) Manufactured
(a) $38,000 $60,000 $48,000 $146,000 $120,000 $96,000 $170,000
(b) $149,000 $53,000 $90,000 $292,000 $117,000 $98,000 $311,000
(c) $53,000 $116,000 $121,000 $290,000 $413,000 $188,000 $515,000
Ex. 171
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, 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.
Ans: N/A, 6, 7, Min: 8, None, Business Economics
Of the boats put into production during September, 2011, 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, 2011:
Raw materials inventory
Work in process inventory
Finished goods inventory
Cost of goods sold
Selling expenses
Ans: N/A, 6, 7, Difficulty: Medium, Min: 12, Reporting,
Ex. 173
Peters Manufacturing Company has the following data at June 30, 2011:
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 410,000
Sales 590,000
Work in process inventory, June 30 30,400
Finished goods inventory, June 30 60,200
Raw materials inventory, June 30 18,000
Ex. 173. (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.
Ans: N/A, 6, 7, Difficulty: Medium, Min: 10, Reporting,
Ex. 174
Glavine Corporation incurred the following costs while manufacturing its product.
Work-in-process inventory was $22,000 at January 1 and $15,500 at December 31. Finished
goods inventory was $65,000 at January 1 and $55,600 at December 31.
Instructions
(a) Compute cost of goods manufactured.
(b) Compute cost of goods sold.
Ans: N/A, 6, Difficulty: Medium, Min: 10, Reporting,
Solution 174 (10–12 min.)
(a) Work-in-process, 1/1 .................................................. $ 22,000
Direct materials used.................................................. $ 90,000
Direct labor................................................................. 110,000
Manufacturing overhead
Depreciation on plant............................................ $60,000
Factory supplies used........................................... 23,000
Property taxes on plant......................................... 19,000
Total manufacturing overhead .................................... 102,000
Total manufacturing costs .......................................... 302,000
Total cost of work-in-process...................................... 324,000
Less: ending work-in-process ..................................... 15,500
Cost of goods manufactured ...................................... $308,500
Ex. 175
The following information is available for Elliot Company.
January 1, 2011 2011 December 31, 2011
Raw materials inventory $ 26,000 $30,000
Work in process inventory 13,500 22,200
Finished goods inventory 30,000 21,000
Materials purchased $150,000
Direct labor 220,000
Manufacturing overhead 180,000
Sales 900,000
Instructions
(a) Compute cost of goods manufactured.
(b) Prepare an income statement through gross profit.
Ans: N/A, 6, Min: 12, Reporting,
Ex. 176
Manufacturing cost data for Morton Company are presented below.
Case A Case B Case C
Direct materials used (a) $65,400 $130,000
Direct labor $ 57,000 86,000 (g)
Manufacturing overhead 46,500 81,600 102,000
Total manufacturing costs 195,650 (d) 263,700
Work-in-process, 1/1/11 (b) 16,500 (h)
Total cost of work-in-process 221,500 (e) 337,000
Work-in-process, 12/31/11 (c) 9,000 80,000
Cost of goods manufactured 180,275 (f) (i)
Instructions
Indicate the missing amount for each letter (a) through (i).
Ans: N/A, Bloom: AN, Difficulty: Medium, Min: 12, Business Economics
$233,000 + $16,500 = E
E = $249,500
Ex. 177
From the account balances listed below, prepare a schedule of cost of goods manufactured for
Sampson Manufacturing Company for the month ended December 31, 2011.
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 25,000
Sales Salaries Expense 14,000
Factory Depreciation Expense 8,000
Finished Goods Inventory, December 1 35,000
Raw Materials Purchases 85,000
Work In Process Inventory, December 1 20,000
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
Ans: N/A, Difficulty: Medium, Min: 12, Reporting,
Ex. 179
The following costs and inventory data were taken from the accounts of Simon Company for
2010:
January 1, 2011 December 31, 2011
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 $83,000
Direct labor 42,000
Factory rent 8,000
Factory utilities 10,000
Indirect materials 4,000
Indirect labor 6,000
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, 2011 in good form.
Ex. 179. (Cont.)
d. Prepare the Cost of Goods Sold section of the Income Statement for Simon Company for the
year ended December 31, 2011 in good form.
Ans: N/A, Difficulty: Medium, Min: 18, Business Economics
b. Manufacturing overhead:
Factory rent $ 8,000
Factory utilities 10,000
Indirect materials 4,000
Indirect labor 6,000
Total manufacturing overhead $28,000
c. SIMON COMPANY
Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 2011
Work in processing, beginning $ 15,000
Direct materials
Raw materials inventory, beginning $ 8,000
Raw materials purchases 83,000
Raw materials available for use 91,000
Less: Raw materials inventory, ending 7,000
Direct materials used $84,000
Direct labor 42,000
Manufacturing overhead 28,000
Total manufacturing costs 154,000
Total cost of work in process 169,000
Less: Work in process, ending 13,000
Cost of goods manufactured $156,000
d. SIMON COMPANY
(Partial) Income Statement
For the Year Ended December 31, 2011
Finished goods inventory, January 1 $ 16,000
Cost of goods manufactured 156,000
Cost of goods available for sale 172,000
Finished goods inventory, December 31 12,000
Cost of goods sold $160,000
Ex. 180
Manufacturing costs for Carson Company for selected months are as follows:
April July October
Beginning work in process $ 80,000 (f) $ 98,000
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 870,000 510,000 430,000
Total cost of work in process (b) 640,000 (k)
Ending work in process 75,000 (g) (l)
Cost of goods manufactured (c) 505,000 385,000
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.)
Ans: N/A, Bloom: AN, Min: 12, Business Economics
During March, the company purchased $240,000 of raw materials on account from Reed
Company and $72,000 of raw materials for cash from Frye Company. In addition, $50,000 was
paid on the Reed account balance.
Instructions
Compute the cost of direct materials used during March.
Ans: N/A, Business Economics
Note: Payment on account to Reed is irrelevant to the direct materials used calculation.
Ex. 183
Presented below are incomplete 2011 manufacturing cost data for Tardy Corporation.
Instructions
Determine the missing amounts.
Ans: N/A, Difficulty: Medium, Business Economics
Ex. 185
Listed below are current asset items for Lester Company at December 31, 2011.
Instructions
Prepare the current assets section of the balance sheet. (Include a complete heading.)
Ans: N/A, Difficulty: Medium, Min: 6, Reporting,
Solution 185 (6–9 min.)
LESTER COMPANY
(Partial) Balance Sheet
December 31, 2011
Current assets
Cash $20,000
Short-term investments 25,000
Accounts receivable 4,000
Inventories:
Finished goods $30,000
Work in process 18,000
Raw materials 12,000 60,000
Prepaid expenses 2,000
Supplies 500
Total current assets $111,500
COMPLETION STATEMENTS
186. Financial accounting information is prepared mainly for ______________ users, while
managerial accounting information is prepared primarily for ______________ users.
Ans: N/A,
187. The types of reports prepared in managerial accounting are often ______________-
purpose reports prepared for a specific decision.
Ans: N/A,
Ans: N/A,
Ans: N/A,
190. The ______________ function is concerned with setting goals and objectives for the
entity.
193. The work of factory employees that can be physically and directly associated with
converting raw materials into products is classified as ______________.
196. A major difference between the income statements of a merchandising company and a
manufacturing company is that the cost of goods sold section of a merchandising
company shows cost of goods______________, whereas a manufacturing company
shows cost of goods ______________.
197. ___________________ is added to direct labor and manufacturing overhead to get total
manufacturing costs for the current period.
198. The ending work in process inventory is subtracted from the total cost of work in process
to calculate ______________________.
Ans: N/A,
199. A manufacturing company computes cost of goods sold by adding cost of goods
manufactured to the ___________________ and subtracting the __________________.
Ans: N/A,
200. A manufacturing company usually has three inventory accounts which are
(1)___________________, (2)___________________, and (3)___________________.
MATCHING
201. Match the items in the two columns below by entering the appropriate code letter in the
space provided.
_____ 3. Primarily concerned with internal users and reports pertain to subunits of the entity.
_____ 4. Materials that can be physically and directly associated with manufacturing a
product.
_____ 7. Primarily concerned with external users and reports pertain to the entity as a whole.
Answers to Matching
1. F 6. H
2. E 7. B
3. A 8. I
4. G 9. J
5. C 10. D
Solution 202
Financial accounting is primarily concerned with external users such as stockholders and
creditors, while the primary users of managerial accounting are those within the company
(internal users) such as officers, managers, supervisors, etc. Quarterly and annual classified
financial statements are the end product of financial accounting. Internal reports, prepared as
often as needed are the result of managerial accounting. The financial statements produced by
financial accounting are general-purpose reports which are highly aggregated, pertain to the
enterprise as a whole, and are constrained by generally accepted accounting principles. The
internal reports prepared by management accountants are special purpose reports which are
detailed, pertain to subunits of the enterprise, and may contain any information relevant to the
decision at hand.
S-A E 203
Julie Mills is studying for her accounting mid-term examination. Summarize for Julie what she
should know about management functions.
Ans: N/A, Measurement, Business Economics
Solution 203
Julie should know that the management of an organization performs three broad functions:
(1) Planning requires management to look ahead and to establish objectives.
(2) Directing involves coordinating the diverse activities and human resources of a company to
produce a smooth-running operation.
(3) Controlling is the process of keeping the company's activities on track.
S-A E 204
A manufacturing company makes the products that it sells. Briefly identify and define the cost
elements that are incurred in making a product. After product cost elements are identified, how is
the cost of goods manufactured for a period determined?
Ans: N/A,
Solution 204
Costs incurred to manufacture a product include direct materials which can be physically and
directly associated with the finished product; direct labor, which is the work of factory employees
which can be physically and directly associated with the finished product; and manufacturing
overhead, those manufacturing costs which are indirectly associated with production of the
finished product. Cost of goods manufactured is computed by adding the cost of direct materials
used, direct labor, and manufacturing overhead to the beginning work in process, and subtracting
the ending work in process.
S-A E 205
Kevin Scott is confused about the differences between a product cost and a period cost. Explain
the differences to Kevin.
Ans: N/A,
Solution 205
Product costs, or inventoriable costs, are costs that are a necessary and integral part of
producing the finished product. 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.
S-A E 206
Assume you have just taken a position as controller for a new company that manufactures and
sells wrought iron wall hangings. Although the founder of the company, who is the president and
CEO, is a great artisan, she has very limited knowledge of accounting.
Instructions
To help your new boss better understand accounting for a manufacturing organization, prepare a
response to her in which you: (1) identify, (2) describe, and (3) provide examples of the three
manufacturing costs and the three inventory accounts used in accounting for a manufacturing
company.
Ans: N/A,
Solution 206
The three manufacturing costs are: direct materials, direct labor, and manufacturing overhead.
Raw materials that can be physically and directly associated with the finished product during the
manufacturing process are called direct materials. The iron used in making the wall hangings is
an example of direct materials. The work of factory employees that can be physically and directly
associated with converting raw materials to finished goods is considered direct labor.
Manufacturing overhead consists of costs that are indirectly associated with the manufacture of
the finished product. These costs may also be manufacturing costs that cannot be classified as
direct materials or direct labor. Manufacturing overhead includes indirect materials, indirect labor,
and depreciation on factory buildings, and machinery, utilities, insurance, taxes and maintenance
on factory facilities.
The three inventory accounts are: raw materials, work in process, and finished goods. Raw
materials inventory represents the cost of the materials and parts that are to be used in the
manufacturing process. The iron purchased to make the wall hangings would be considered raw
materials until the time it was put into production. Work in process is the cost applicable to units
that have been started into production but are only partially complete. Wall hangings on the
assembly line that are in various stages of completion would be work in process. The finished
goods inventory represents the cost of completed goods that have not been sold. The cost of wall
hangings that are completed but have not been sold would be finished goods.
At the most recent employee meeting, Tyler Hanes, marketing manager, expressed his
discomfort with the system. He said there was no guarantee that the second set of information
was fair, since there were no generally accepted principles for this kind of information. He also
said that it was kind of like keeping two sets of books—one following all legal requirements, and
the other one actually used by the company.
Required:
1. Is it ethical to evaluate managers in the way described? Explain briefly.
2. Name at least two safeguards the company could build into its system to ensure the ethical
treatment of employees.
Ans: N/A, AACSB: Ethics,
Solution 207
1. It is ethical for a company to use all available data in order to evaluate managers, and even to
collect data not routinely available. In fact, such a method seems preferable to one in which
the company may only use specified financial data in its evaluation of a manager's
performance. It does not imply a departure from GAAP, nor that the company does not
actually use the information prepared according to GAAP. It supplements the standard
reports, it does not replace them.
Solution 207 (Cont.)
2. The company should make certain that the appropriate information is calculated in the same
way each period. All the relevant data should be collected and reported each period. New
data should be limited. The qualitative information should be complemented, not replaced, by
the regular financial information.
Linda Bedard and Sam Hilton, managers of different manufacturing departments in the same
building, have been working together. They found the following four costs that could be
economically traced to the products, but have historically been a part of overhead:
Cost of setting up the machinery for a different production run.
Cost of minor assembly components such as knobs and switches.
Cost of packaging, which is quite different for each model.
Cost of inspecting and testing each model.
None of the costs is significant by itself, but together these four costs make up between 10 and
15% of the total cost of the product. Linda favors "leaving well enough alone," as she puts it, and
leaving these costs in overhead. She is afraid that her volunteering to trace these costs will result
in her having to trace many more costs in the future. Sam, on the other hand, prefers to have the
product cost as accurate as possible. He points out that these costs are already known, and the
process would require little extra work.
Required:
You have been called on in your function as accounting manager to resolve the dispute. Write a
memo to Linda and Sam, supporting one or the other position. Be sure to adequately defend your
position, but be brief.
Ans: N/A,
Solution 208
I strongly support the tracing of as much of what is now overhead directly to the
products as possible (sorry, Linda). Besides giving more accurate product costs
now, as Sam says, it will help us considerably in the future. We can evaluate
products better, the more we know about which costs they generate. Otherwise,
we just assign them some amount of overhead, which may be either more or less
than they actually cost.
Thank you both for your hard work. It is true, as Linda says, that our reviews will
(temporarily) cause us more work (sorry, Sam). However, I think you'll both agree
that the benefits of knowing the costs of our products better will make the effort
well worthwhile.
So, let's start tracing the four costs you mentioned now. Once we have the glitches
ironed out, we'll share the results with the other departments.
(signed)