Chapter 14: Exercises

Here are the responses for each exercise: Exercise 14-1: Managerial vs. Financial Accounting 1. 2. 3. 4. 5. 6. 7. 8. Managerial - Decisions about resource allocation within the company Financial - Information presented to external investors or creditors Managerial - Setting cost-control strategies Managerial - Establishing budgets for departments Financial - Publishing quarterly financial statements Managerial - Evaluating departmental performance Financial - Compliance with external reporting requirements Managerial - Forecasting future cash flows Exercise 14-2: Classifying Direct and Indirect Costs (Soccer Balls) 1. 2. 3. 4. 5. 6. Leather used in the soccer balls - Direct Wages for production workers - Direct Depreciation on production equipment - Indirect Factory supervisor salary - Indirect Glue for assembly - Indirect Packaging for shipping - Indirect Exercise 14-3: Classifying Direct and Indirect Costs for a Service Company (TechPro) 1. 2. 3. 4. 5. 6. 7. 8. Depreciation on classroom building - Indirect Monthly Internet connection cost - Indirect Instructional manuals for students - Direct Classroom building utilities cost - Indirect Depreciation on computers used for classes - Indirect Instructor wage (per class) - Direct Classroom cleaning fees - Indirect Snacks for the class - Direct Exercise 14-4: Classifying Costs for a Service Company (Airline) 1. Fuel for the flight - Direct 2. Pilot and flight attendant wages - Direct 3. 4. 5. 6. 7. 8. In-flight meals - Direct Aircraft maintenance - Indirect Ticketing office rent - General and Administrative Advertising expenses - Selling Depreciation on aircraft - Indirect Pilot uniforms - Indirect Exercise 14-5: Classifying Costs (Apple’s iPhone) 1. 2. 3. 4. 5. 6. 7. 8. Display screen - Direct Materials Assembly-line supervisor salary - Factory Overhead Wages for assembly workers - Direct Labor Salary of the chief executive officer - General and Administrative Glue to hold iPhone cases together - Factory Overhead Uniforms for each factory worker - Factory Overhead Wages for retail store salesperson - Selling Expenses Depreciation on robotic equipment used in assembly - Factory Overhead Exercise 14-6: Classifying Product and Period Costs (Car Manufacturer) Steel for car frames - Product Cost (Direct Materials) Paint for cars - Product Cost (Factory Overhead) Wages for assembly workers - Product Cost (Direct Labor) Sales commissions - Period Cost (Selling Expense) Office supplies - Period Cost (General and Administrative Expense) Insurance on manufacturing equipment - Product Cost (Factory Overhead) 7. Shipping costs for finished cars - Period Cost (Selling Expense) 8. Depreciation on factory equipment - Product Cost (Factory Overhead) 1. 2. 3. 4. 5. 6. Exercise 14-7: Computing Cost of Goods Manufactured and Cost of Goods Sold To compute cost of goods manufactured and cost of goods sold, we need the following data: beginning and ending work-in-process inventory, direct materials used, direct labor, factory overhead, beginning and ending finished goods inventory. The formulas are: 1. Cost of Goods Manufactured (COGM): COGM=Beginning WIP+Direct Materials Used+Direct Labor+Factory Over head−Ending WIP 2. Cost of Goods Sold (COGS): COGS=Beginning Finished Goods+COGM−Ending Finished Goods Exercise 14-8: Preparing Financial Statements for a Manufacturer For this exercise, an income statement and the current assets section of the balance sheet are prepared using the values from Exercise 14-7 once provided. Exercise 14-9: Computing Prime and Conversion Costs Using data from Exercise 14-7: 1. Prime Costs = Direct Materials + Direct Labor 2. Conversion Costs = Direct Labor + Factory Overhead Exercise 14-10: Cost of Goods Sold for Merchandiser and Manufacturer For a merchandiser: COGS=Beginning Inventory+Purchases−Ending Inventory For a manufacturer: COGS=Beginning Finished Goods Inventory+Cost of Goods Manufactured−Endin g Finished Goods Inventory Exercise 14-11: Balance Sheet Identification and Preparation For identifying the current assets for each company (manufacturer vs. merchandiser), note that the manufacturer’s assets typically include raw materials, work-in-process, and finished goods, while the merchandiser has only merchandise inventory. Exercise 14-12: Components of Accounting Reports Each account can be identified as part of selling expenses, general and administrative expenses, or cost of goods manufactured based on whether it contributes to production, sales, or overall administration. Exercise 14-13: Preparing a Schedule of Cost of Goods Manufactured To prepare the schedule of cost of goods manufactured: 1. Direct Materials Used = Beginning Raw Materials + Purchases - Ending Raw Materials 2. Total Manufacturing Costs = Direct Materials Used + Direct Labor + Factory Overhead 3. COGM = Beginning WIP + Total Manufacturing Costs - Ending WIP Exercise 14-14: Income Statement Preparation Using Exercise 14-13 data, prepare an income statement with Sales Revenue, COGS, Gross Profit, Operating Expenses, and Net Income. Exercise 14-15: Schedule of Cost of Goods Manufactured and Cost of Goods Sold Compute the Cost of Goods Manufactured and Cost of Goods Sold using Taccount information. Exercise 14-16: Cost Flows in Manufacturing – Visualization Calculate missing amounts for cost flows using available figures in the cost flow chart. Exercise 14-17: Determining Cost Flows for Manufacturers Calculate missing amounts for work-in-process, direct materials, direct labor, or overhead as needed. Exercise 14-18: Lean Business Practices 1. 2. 3. 4. 5. 6. Courteous employees - TQM Food produced to order - JIT Clean tables and floors - TQM Orders filled within three minutes - CI Standardized food-making processes - CI New product development - CI Exercise 14-19: Triple Bottom Line 1. 2. 3. 4. 5. 6. Sales revenue - Profit Fair wages for coffee suppliers - People Reduced water consumption - Planet Net income - Profit Renewable energy purchases - Planet Stopped working with poor-condition factories - People