Ch.

19 Managerial Accounting

Ch.19 Managerial Accounting

Chapter Learning Objective

1.Identify the features of managerial accounting and the functions of management. The
primary users of managerial accounting reports issued as frequently as needed, are internal
users, who are officers, department heads, managers, and supervisors in the company. The
purpose of these reports is to provide special-purpose information for a particular user for a
specific decision. The content of managerial accounting reports pertains to subunits of the
business. It may be very detailed, and may extend beyond the double-entry accounting system.
The reporting standard is relevance to the decision being made. No independent audits are
required in managerial accounting. The functions of management are planning, directing, and
controlling. Planning requires management to look ahead and to establish objectives. Directing
involves coordinating the diverse activities and human resources of a company to produce a
smooth-running operation. Controlling is the process of keeping the activities on track.
2. Describe the classes of manufacturing costs and the differences between product and
period costs. Manufacturing costs are typically classified as either (1) direct materials, (2) direct
labor, or (3) manufacturing overhead. Raw materials that can be physically and directly
associated with the finished product during the manufacturing process are called direct materials.
The work of factory employees that can be physically and directly associated with converting raw
materials into finished goods is considered direct labor. Manufacturing overhead consists of
costs that are indirectly associated with the manufacture of the finished product. Product costs
are costs that are a necessary and integral part of producing the finished product. Product costs
are also called inventoriable costs. These costs do not become expenses until the company sells
the finished goods inventory. Period costs are costs that are identified with a specific time period
rather than with a salable product. These costs relate to nonmanufacturing costs and therefore
are not inventoriable costs.
3. Demonstrate how to compute cost of goods manufactured and prepare financial
statements for a manufacturer. Companies add the cost of the beginning work in process to
the total manufacturing costs for the current year to arrive at the total cost of work in process for
the year. They then subtract the ending work in process from the total cost of work in process to
arrive at the cost of goods manufactured. The difference between a merchandising and a
manufacturing income statement is in the cost of goods sold section. A manufacturing cost of
goods sold section shows beginning and ending finished goods inventories and the cost of goods
manufactured. The difference between a merchandising and a manufacturing balance sheet is
in the current assets section. The current assets section of a manufacturing company's balance
sheet presents three inventory accounts: finished goods inventory, work in process inventory,
and raw materials inventory.
4 Discuss trends in managerial accounting. Managerial accounting has experienced many
changes in recent years, including a shift toward service companies as well as emphasis on
ethical behavior. Improved practices include a focus on managing the value chain through
techniques such as just-in-time inventory, total quality management, activity-based costing, and
theory of constraints. The balanced scorecard is now used by many companies in order to attain
a more comprehensive view of the company's operations. Finally, companies are now evaluating
their performance with regard to their corporate social responsibility.

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19.01 True or False Statements

1. Reports prepared in financial accounting are general-purpose reports, whereas reports
prepared in managerial accounting are usually special-purpose reports.
2. Managerial accounting information generally pertains to an entity as a whole and is
highly aggregated.
3. Managerial accounting applies to all forms of business organizations.
4. Determining the unit cost of manufacturing a product is an output of financial
accounting.
5. Managerial accounting internal reports are prepared more frequently than are
classified financial statements.
6. The management function of organizing and directing is mainly concerned with
setting goals and objectives for the entity.
7. The controller of a company is responsible for all of the accounting and finance issues
a company faces..
8. Controlling is the process of determining whether planned goals are being met.
9. Decision-making is an integral part of the planning, directing, and controlling
functions.
10. Direct materials costs and indirect materials costs are manufacturing overhead.
11. Manufacturing costs that cannot be classified as direct materials or direct labor are
classified as manufacturing overhead.
12. Raw materials are equal to direct materials minus indirect materials.
13. Raw materials that can be conveniently and directly associated with a finished product
are called materials overhead.
14. The total cost of a finished product does not generally contain equal amounts of
materials, labor, and overhead costs.
15. Both direct labor cost and indirect labor cost are product costs.
16. Period costs include selling and administrative expenses.
17. Indirect materials and indirect labor are both inventoriable costs.
18. Direct materials and direct labor are the only product costs.
19. Total period costs are deducted from total cost of work in process to calculate cost of
goods manufactured.
20. Period costs are not inventoriable costs.
21. Ending finished goods inventory appears on both the balance sheet and the income
statement of a manufacturing company.
22. The beginning work in process inventory appears on both the balance sheet and the
cost of goods manufactured schedule of a manufacturing company.
23. In calculating gross profit for a manufacturing company, the cost of goods
manufactured is deducted from net sales.
24. Finished goods inventory does not appear on a cost of goods manufactured schedule.
25. If 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.
26. Finished goods inventory for a manufacturing company is equivalent to inventory for
a merchandising company.
27. Raw materials inventory shows the cost of completed goods available for sale to
customers.
28. The balanced scorecard approach attempts to maintain as little inventory on hand as
possible.
29. The supply chain is all the activities associated with providing a product or service.

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

19.02 - L01
Financial accounting information and managerial accounting information have a number of distinguishing
characteristics. For each of the characteristics listed below, indicate which characteristics are more closely
related to financial accounting by placing the letter "F" in the space to the left of the item and indicate those
characteristics which are more closely associated with managerial accounting by placing the letter "M" to the
left of the item.
____ 1. General-purpose reports
____ 2. Reports are used internally
____ 3. Prepared in accordance with generally accepted accounting principles
____ 4. Special purpose reports
____ 5. Limited to historical cost data
____ 6. Reporting standard is relevance to the decision to be made
____ 7. Financial statements
____ 8. Reports generally pertain to the business as a whole
____ 9. Reports generally pertain to subunits
____ 10. Reports issued quarterly or annually

19.03 - L02
Determine whether each of the following is classified as:
DM: Direct materials
DL: Direct labor
MO: Manufacturing overhead

_____ 1. Assembly line workers' wages.

_____ 2. Factory supervisors' salaries.
_____ 3. Steel used in manufacturing product.
_____ 4. Insurance on factory building.
_____ 5. Rivets and screws used in production.
_____ 6. Tires used in manufacturing vehicles.

19.04 - L02
Presented below is a list of costs and expenses incurred in the factory by Nu-Way Corporation, a
manufacturer of recreational vehicles.
____ 1. Property taxes on the factory land
____ 2. Nails and glue used in production
____ 3. Cabinet maker's wages
____ 4. Factory supervisors’ salaries
____ 5. Metal used in manufacturing
____ 6. Depreciation on factory machines
____ 7. Factory utilities
____ 8. Carpeting for the recreational vehicles
____ 9. Property taxes on the factory building
____ 10. Insurance on factory equipment

Instructions

Classify the above items into the following categories:

DM — Direct Materials
DL — Direct Labor
MO — Manufacturing Overhead

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19.05 - L02
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 ________

19.06 - L02
Kennedy Company reports the following costs and expenses in May.

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

Depreciation on factory Sales salaries 48,400
equipment 12,650 Property taxes on factory
Depreciation on delivery trucks 3,800 building 2,500
Indirect factory labor 48,900 Repairs to office equipment 1,300
Indirect materials 70,800 Factory repairs 2,000
Direct materials used 157,600 Advertising 23,000
Factory manager's salary 8,000 Office supplies used 4,640

Instructions
From the information, determine the total amount of:
(a) Manufacturing overhead.
(b) Product costs.
(c) Period costs.

19.07 - L02
Kwik Delivery Service reports the following costs and expenses in June 2019.

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

Depreciation on delivery Advertising 5,100
equipment 11,200 Delivery equipment
Dispatcher's salary 5,000 repairs 300
Property taxes on office Office supplies 650
building 870 Office utilities 2,490
CEO's salary 12,000 Repairs on office
Gas and oil for delivery trucks 3,200 equipment 180

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

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19.08 - L02
For each item listed below, indicate in the space to the left whether the item would be considered a
product cost or a period cost for a manufacturing company. Use the following code:

Pr = Product cost
Pe = Period cost

____ 1. Factory supervisory salaries

____ 2. Sales commissions
____ 3. Income tax expense
____ 4. Indirect materials used
____ 5. Indirect labor
____ 6. Office salaries expense
____ 7. Property taxes on factory building
____ 8. Sales manager's salary
____ 9. Factory wages expense
____ 10. Direct materials used

19.09 - L02
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

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.

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19.10 - L03
Presented below are incomplete 2019 manufacturing cost data for Tardy Corporation.

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 $80,000 $48,000 ? $120,000 $96,000 ?
(b) $149,000 $53,000 $90,000 $292,000 ? $98,000 $311,000
(c) $53,000 $116,000 $121,000 $290,000 $403,000 ? $515,000

Instructions
Determine the missing amounts.
19.11 - L03
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.
19.12 - L03
Klein Company manufactures boats. During September, 2019, the company purchased 100 cellular
phones at a cost of $110 each. Klein withdrew 70 phones from the warehouse during the month.
Twenty of these phones were installed in salespersons’ cars and the remaining 50 phones were put
in boats manufactured during the month.

Of the boats put into production during September, 2019, 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, 2019:
Raw materials inventory
Work in process inventory
Finished goods inventory
Cost of goods sold
Selling expenses

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19.13 - L03
Peters Manufacturing Company has the following data at June 30, 2019:
Raw materials inventory, June 1 $ 13,800
Work in process inventory, June 1 18,100
Finished goods inventory, June 1 43,500
Total manufacturing costs 430,000
Sales 580,000
Work in process inventory, June 30 30,400
Finished goods inventory, June 30 55,200
Raw materials inventory, June 30 18,000

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.

19.14 - L03
Glavine Corporation incurred the following costs while manufacturing its product.

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

Depreciation on plant 60,000 Property taxes on plant 19,000
Property taxes on store 7,500 Delivery expense 21,000
Labor costs of assembly-line workers 110,000 Sales commissions 35,000
Factory supplies used 23,000 Salaries paid to sales clerks 50,000

Work-in-process inventory was $27,000 at January 1 and $15,500 at December 31. Finished
goods inventory was $65,000 at January 1 and $50,600 at December 31.

Instructions
(a) Compute cost of goods manufactured.
(b) Compute cost of goods sold.

19.15 – LO 2 L03
The following information is available for Elliot Company.
January 1, 2019 2019 December 31, 2019
Raw materials inventory $ 26,000 $30,000
Work in process inventory 18,500 22,200
Finished goods inventory 30,000 21,000
Materials purchased $170,000
Direct labor 230,000
Manufacturing overhead 180,000
Sales 800,000
Instructions
(a) Compute cost of goods manufactured.
(b) Prepare an income statement through gross profit.

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19.16 - L03
Manufacturing cost data for Morton Company are presented below.
Case A Case B Case C
Direct materials used (a) $75,400 $130,000
Direct labor $ 57,000 76,000 (g)
Manufacturing overhead 46,500 81,600 102,000
Total manufacturing costs 195,650 (d) 283,700
Work-in-process, 1/1/19 (b) 16,500 (h)
Total cost of work-in-process 221,500 (e) 327,000
Work-in-process, 12/31/19 (c) 9,000 80,000
Cost of goods manufactured 180,275 (f) (i)

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

19.17 - L03
From the account balances listed below, prepare a schedule of cost of goods manufactured for
Sampson Manufacturing Company for the month ended December 31, 2019.

Account Balances
Finished Goods Inventory, December 31 $42,000
Factory Supervisory Salaries 12,000
Income Tax Expense 18,000
Raw Materials Inventory, December 1 12,000
Work In Process Inventory, December 31 15,000
Sales Salaries Expense 14,000
Factory Depreciation Expense 8,000
Finished Goods Inventory, December 1 35,000
Raw Materials Purchases 105,000
Work In Process Inventory, December 1 25,000
Factory Utilities Expense 6,000
Direct Labor 70,000
Raw Materials Inventory, December 31 19,000
Sales Returns and Allowances 5,000
Indirect Labor 21,000

19.18 - L03
Rabid Manufacturing Company has the following data:
Direct labor $145,000
Direct materials used 151,000
Total manufacturing overhead 208,000
Beginning work in process 26,000
Instructions
Compute (a) total manufacturing costs and (b) total cost of work in process.

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19.19 - L03
The following costs and inventory data were taken from the accounts of Simon Company for 2019:
January 1, 2019 December 31, 2019
Inventories:
Raw materials $ 8,000 $ 7,000
Work in process 15,000 13,000
Finished goods 16,000 12,000
Costs incurred:
Raw materials purchases $98,000
Direct labor 42,000
Factory rent 8,000
Factory utilities 10,000
Indirect materials 6,000
Indirect labor 9,000
Operating expenses 17,000
Instructions
a. Prepare a schedule showing the amount of direct materials used in production during the year.
b. Compute the amount of manufacturing overhead incurred during the year.
c. Prepare a schedule of Cost of Goods Manufactured for Simon Company for the year ended
December 31, 2019 in good form.
d. Prepare the Cost of Goods Sold section of the Income Statement for Simon Company for the
year ended December 31, 2019 in good form.
19.20 - L03
Manufacturing costs for Carson Company for selected months are as follows:
April July October
Beginning work in process $ 80,000 (f) $ 88,000
Direct materials used 280,000 $190,000 155,000
Direct labor 195,000 170,000 (j)
Manufacturing overhead (a) 150,000 90,000
Total manufacturing costs 860,000 510,000 450,000
Total cost of work in process (b) 640,000 (k)
Ending work in process 75,000 (g) (l)
Cost of goods manufactured (c) 515,000 385,000
Beginning finished goods (d) 38,000 (m)
Cost of goods available for sale 960,000 (h) 480,000
Ending finished goods (e) 75,000 (n)
Cost of goods sold 820,000 (i) 355,000

Instructions
Indicate the missing amounts. (Show computations.)

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19.21 - L03
Fill in the missing information on the cost of goods manufactured schedule of Noland Manufacturing
Company:

NOLAND MANUFACTURING COMPANY

Cost of Goods Manufactured Schedule
For the Year Ended December 31, 2019

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

Direct materials
Raw materials inventory (1/1) $ ?
Raw materials purchases 246,000
Raw materials available for use ?
Raw materials inventory (12/31) 37,000
Direct materials used $255,000
Direct labor ?
Manufacturing overhead
Indirect labor 19,000
Factory depreciation 38,000
Factory utilities 39,000
Total overhead ?
Total manufacturing costs ?
Total cost of work in process ?
Less: Work in process (12/31) 322,000
Cost of goods manufactured $480,000

19.22 - L03
Data for the cost of direct materials for the month ended March 31, 2019, are as follows:

Materials inventory, March 1, 2019 $76,000

Materials inventory, March 31, 2019 70,000

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

Instructions
Compute the cost of direct materials used during March.

19.23 - L03
Presented below are incomplete 2019 manufacturing cost data for Tardy Corporation.

Direct Materials Manufacturing Total Manufacturing

Used Direct Labor Overhead Costs
(a) $61,000 $72,000 $54,000 ?
(b) ? $53,000 $90,000 $252,000
(c) $53,000 ? $96,000 $310,000

Instructions
Determine the missing amounts.

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19.24 - L03
Indicate whether each of the following would appear on the:
A—Cost of goods manufactured schedule
B—Income statement
C—Balance sheet
Note: If it would appear in more than just one, indicate which ones.

______ 1. Cost of goods sold

______ 2. Finished goods inventory, 12/31

______ 3. Direct materials used

______ 4. Raw materials inventory, 1/1

______ 5. Insurance on factory equipment

______ 6. Work in process, 12/31

______ 7. Indirect labor

______ 8. Property taxes on office building

19.25 - L03
Listed below are current asset items for Lester Company at December 31, 2019.

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

Cash 22,000 Raw materials inventory 17,000
Prepaid expenses 2,000 Work in process inventory 23,000
Accounts receivable 4,000 Supplies 500

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

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