ACC Chapter 14

Managerial accounting applies to all types of businesses, including service, merchandising, and manufacturing, as well as to all forms of business organizations.True.
Which of the following statements is not true about managerial accounting?It is highly aggregated.
Which of the following statements is true about managerial accounting?It provides more detailed information than financial accounting does.
Managerial accountingplaces emphasis on special-purpose information.
All of the following are distinguishing features of managerial accounting exceptindependent audits.
Planning is the process of keeping the company’s activities on track.False.

Look ahead and establish objectives

Which of the following are considered to be management’s three broad functions?Planning, directing, and controlling
Which of the following is considered part of the controlling process?Keeping the company’s activities on track
After passage of the Sarbanes-Oxley Act of 2002CEOs and CFOs must certify that financial statements give a fair presentation of the company’s operating results.
The process of keeping the company’s activities on track iscontrolling.
Indirect material costs are easily traced to products because of their physical association with the finished product.False.
Manufacturing overhead consists of costs that are indirectly associated with the manufacture of the finished product.True.
Which one of the following is not a manufacturing cost?Advertising cost
Which of the following answer choices lists the three manufacturing costs?Direct materials, direct labor, and manufacturing overhead
Which of the following costs would a computer manufacturer include in manufacturing overhead?Depreciation on testing equipment.
Which of the following is not an element of manufacturing overhead?Sales manager’s salary.
Manufacturing overhead includes all of the following exceptdirect materials.
On average, studies have shown that the smallest component of total manufacturing cost isdirect labor.
Product costs are costs that are a necessary and integral part of producing the finished product.True.
Barry’s BarBQue incurred the following costs: $1,400 for ribs, 45 hours of labor to cook the ribs at $10 per hour, $50 for seasoning and sauce, $300 for signs to advertise the ribs, $150 to clean the grill after cooking the ribs, and $100 of administrative costs. How much are total product costs?$2,050

$1,400 + (45*$10) + $50 + $150 = $2,050.

Which group of costs consists of only product costs?Direct labor, indirect labor, factory utilities
Indirect labor is aproduct cost.
Which of the following costs are classified as a period cost?Wages paid to a cost accountant department supervisor.
Product costs include each of the following exceptselling and administrative expenses.
Each of the following is a period cost exceptindirect labor.
Pharmco incurred the following costs while manufacturing its product: Materials used in production, $120,000; factory depreciation, $60,000; property taxes on the administrative offices, $12,000; labor costs of assembly-line workers, $95,000; factory supplies used, $8,000; advertising expense, $13,000; property taxes on the factory, $20,000; delivery expense, $23,000; salaries of the sales staff, $53,000; and sales commissions, $17,000. The total product costs for Pharmco are$303,000

120,000 + 95,000 + 8,000 + 60,000 + 20,000= 303,000

Manufacturers compute cost of goods sold by adding the beginning finished goods inventory to the cost of goods purchased and subtracting the ending finished goods inventory.False
Which of the following would you find on the income statement of a manufacturing company, but not on the income statement of a merchandising company?Cost of goods manufactured
One key difference appears when comparing the income statements of a manufacturing company to a merchandising company. What is that difference?Manufacturing companies use cost of goods manufactured and merchandising companies use cost of goods purchased.
For the year, Redder Company has cost of goods manufactured of $600,000, beginning finished goods inventory of $200,000, and ending finished goods inventory of $250,000. The cost of goods sold is$550,000

200,000 + 600,000 – 250,000= 550,000

Cost of goods available for sale is reported on the income statement ofa merchandising company and a manufacturing company.
For a manufacturing firm, cost of goods available for sale is computed by adding the beginning finished goods inventory tocost of goods manufactured.
The principal difference between a merchandising and a manufacturing income statement is thecost of goods sold section.
Manders Corporation has $20,000 of ending finished goods inventory at December 31. If beginning finished goods inventory was $15,000 and cost of goods sold was $40,000, how much would Manders Corporation report as cost of goods manufactured?$45,000

40,000 + 15,000 – 20,000= 45,000

The costs assigned to beginning work in process inventory are based on the manufacturing costs incurred in the prior period.True.
The cost of the beginning work in process plus the total manufacturing costs for the current period is the cost of goods manufactured.False.
A cost of goods manufactured schedule shows beginning and ending inventories forraw materials and work in process only.
The formula to determine the cost of goods manufactured isbeginning work in process inventory + total manufacturing costs – ending work in process inventory.
The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred is thetotal manufacturing costs.
Companies compute cost of goods manufactured by subtracting ending work in process inventory fromtotal cost of work in process.
Model Magic Manufacturing reported the following year-end balances: 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, $510,000; direct labor, $180,000; and manufacturing overhead, $75,000. What is the amount of total work in process for Model Magic for the current year?First, direct materials used = beginning raw materials inventory ($18,000) + raw materials purchased ($510,000) – ending raw materials inventory ($15,000) = $513,000. Then, total cost of work in process = beginning work in process inventory ($35,000) + direct materials used ($513,000) + direct labor ($180,000) + manufacturing overhead ($75,000) = $803,000
Buxmont Manufacturing reported the following year-end balances: Beginning work in process inventory, $40,000; beginning finished goods inventory, $60,000; ending work in process inventory, $20,000; ending finished goods inventory, $30,000; direct materials used, $240,000; direct labor, $250,000; manufacturing overhead, $150,000; selling expenses, $50,000; and administrative expenses, $350,000. How much would Buxmont Manufacturing report as cost of goods manufactured at year-end?Cost of goods manufactured = beginning work in process ($40,000) + total manufacturing costs [direct materials used ($240,000) + direct labor ($250,000) + manufacturing overhead ($150,000)] or $640,000 – ending work in process ($20,000) = $660,000
Companies generally list manufacturing inventories in the order of completion-raw materials, work in process, and finished goods.False.
Which one of the following is true concerning manufacturing and merchandising companies’ inventories?Manufacturing companies report inventories in the order of liquidity.
Which one of the following is true concerning manufacturing and merchandising companies’ inventories on the balance sheet?Finished goods is to a manufacturer what merchandise inventory is to a merchandiser.
A manufacturer may report three inventories in its balance sheet: (1) raw materials, (2) work in process, and (3) finished goods. Indicate in what sequence these inventories generally appear on a balance sheet.(3), (2), (1)
The cost applicable to units that have been started into production but not completed is shown aswork in process inventory.
Under the just-in-time inventory method, goods are manufactured or purchased just-in-time for use.True.
Which one of the following is a trend in industry?The U.S. economy has shifted toward an emphasis on providing services.
Which one of the following is a trend in managerial accounting?Large machines have been replaced with smaller, more flexible ones.
Which of the following managerial accounting techniques attempts to allocate manufacturing overhead in a more meaningful fashion?Activity-based costing.
Examples of recent trends in the economic environment of U.S. businesses areincreasing deregulation, increasing global competition, and a shift toward providing services rather than goods.
Many companies have significantly lowered inventory levels and costs usingjust-in-time inventory methods.
All activities associated with providing a product or service is referred to asthe value chain.