Managerial Accounting: Tools For Business Decision-Making, Third Canadian Edition Solution Manual

CHAPTER 2 ASSIGNMENT CLASSIFICATION TABLE Study Objectives 1. Define the three classes of manufacturing costs and distinguish between product and period costs. Questions 10, 11, 12, 13 2. Explain how costs are affected by changes in the levels of business activity. 1, 2, 3, 4, 5, 6, 7 3. Explain the difference between a merchandising income statement and a manufacturing income statement. 4. Explain the difference between a merchandising balance sheet and a manufacturing balance sheet. Brief Exercises 1, 2, 3, 9, 10, 12 Do It! Review 14 Exercises 18, 19, 20, 21, 22, 29, 35 Problems 40A, 41A, 45A, 46A, 48A, 49B, 50B, 53B, 4, 5, 6, 7, 8 15, 16, 17 23, 24, 25, 26, 27, 28 47A, 55B 8, 14, 15, 16, 17, 18 13 30, 31, 32, 33, 34, 35, 36, 37, 38, 39 42A, 43A, 45A, 46A, 48A, 51B, 52B, 54B, 56B, 57B, 58B 9, 19 11 37, 38, 39 42A, 43A, 51B, 52B, 53B Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number 40A 41A 42A 43A 44A 45A 46A 47A 48A 49B 50B 51B 52B 53B 54B 55B 56B 57B 58B Description Classify manufacturing costs into different categories and calculate the unit cost. Classify manufacturing costs into different categories and calculate the unit cost. Indicate the missing amount of different cost items, and prepare a condensed cost of goods manufactured schedule, an income statement, and a partial balance sheet. Prepare a cost of goods manufactured schedule, a partial income statement, and a partial balance sheet. Prepare a cost of goods manufactured schedule and a correct income statement Calculate raw materials purchased, cost of goods manufactured, and cost of goods sold. Calculate raw materials purchased, cost of goods manufactured, and cost of goods sold. Determine missing amounts in the cost of goods manufactured and sold schedules and compare fixed and variable costs. Determine missing amounts and calculate costs for schedules of cost of goods manufactured and sold. Classify manufacturing costs into different categories and calculate the unit cost. Classify manufacturing costs into different categories and calculate the unit cost. Indicate the missing amount of different cost items, and prepare a condensed cost of goods manufactured schedule, an income statement, and a partial balance sheet. Prepare a cost of goods manufactured schedule, a partial income statement, and a partial balance sheet. Calculate prime cost, conversion cost and cost of goods manufactured. Prepare income statement schedules for cost of goods sold and cost of goods manufactured. Determine missing amounts in the cost of goods manufactured and sold schedules and compare fixed and variable costs. Prepare a cost of goods manufactured schedule and a correct income statement Calculate selected costs for the income statement, and schedules of cost of goods manufactured and sold. Determine missing amounts, prepare cost of goods manufactured and calculate inventory values. Difficulty Level Simple Time Allotted (min.) 20–30 Simple 20–30 Moderate 30–40 Moderate 30–40 Moderate 30–40 Moderate 20–30 Moderate 20–30 Challenging 30–40 Challenging 30–40 Simple 20–30 Simple 20–30 Moderate 30–40 Moderate 30–40 Moderate 20–30 Moderate 30–40 Challenging 20–30 Moderate 30–40 Moderate 20–30 Challenging 40–50 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-2 For Instructor Use Only Study Objective Knowledge 1. Define the three classes Q10, D14, of manufacturing costs and distinguish between product and period costs. 2. Explain how costs are affected by changes in the levels of business activity Comprehension Q12, Q13, BE1, Application BE12, E35, E29, PB53 Analysis Synthesis Q11, PA40, PA41, BE2, BE3, BE9, PA45, PA46, PA48, BE10, E18 – E22, PB49, PB50 Q1, Q2, Q5, Q6, Q7, BE5, BE6, D16, Q3, Q4,BE7, BE8, BE4, D15, E23, D17, E25, E27, E28, E24, PA47, PB55, Q16, Q17, Q18, BE13, Q15, PA45, PA46, E32, E33, E30, E31, E34, E35, PA48, PB54, PB57 PA42,PA44, E26 . 3. Explain the difference between a merchandising income statement and a manufacturing income statement. Q14, E37 4. Explain the difference between a merchandising balance sheet and a manufacturing balance sheet. Q19, E37 Q8, E36, E38, E39, PA43, PB51, PB58 PB52, PB56 Q9, BE11, E38, E39, PA43, PB52 PB53 PA42, PB51 Evaluation BLOOM’S TAXONOMY TABLE © 2011 Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems 2-3 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly ANSWERS TO QUESTIONS 1. (a) Cost behaviour analysis is the study of how specific costs respond to changes in the level of activity within a company. (b) Cost behaviour analysis is important to management in planning business operations and in deciding between alternative courses of action. 2. (a) The activity index identifies the activity that causes changes in the behaviour of costs. Once the index is determined, it is possible to classify the behaviour of costs in response to changes in activity levels into three categories: variable, fixed, or mixed. (b) Variable costs may be defined in total or on a per-unit basis. Variable costs in total vary directly and proportionately with changes in the activity level. Variable costs per unit remain the same at every level of activity. 3. Fixed costs remain the same in total regardless of changes in the activity level. In contrast, fixed costs per unit vary inversely with activity. As volume increases, fixed costs per unit decline and vice versa. 4. (a) The relevant range is the range of activity over which a company expects to operate during the year. (b) Disagree. The behaviour of both fixed and variable costs are linear only over a certain range of activity. Cost-Volume-Profit (CVP) analysis is based on the assumption that both fixed and variable costs remain linear within the relevant range. 5. This is true. Most companies operate within the relevant range. Within this range, it is possible to establish a linear (straight-line) relationship for both variable and fixed costs. If a relevant range cannot be established, segregation of costs into fixed and variable becomes extremely difficult and those costs may be unreliable when used to make decisions. 6. Apartment rent is fixed because the cost per month remains the same regardless of how much the apartment is used. Rent on a rental truck is a mixed cost because the cost usually includes a per day charge (a fixed total cost) plus an activity charge based on kilometres driven (a variable cost). 7. Variable cost per unit is determined by dividing “Change in costs” by “Change in activity”. In this case: ($185,000 – $100,000) ÷ ($90,000 – $40,000) = $1.70. At any level of activity fixed costs are total costs less variable costs, or in this case: $185,000 – ($1.70 × 90,000) which equals $32,000 per month. 8. The difference between income statements is in the computation of the cost of goods sold as follows: Manufacturing Company: Beginning finished goods inventory plus cost of goods manufactured minus ending finished goods inventory = cost of goods sold. Merchandising Company: Beginning merchandise inventory plus cost of goods purchased minus ending merchandise inventory = cost of goods sold. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-4 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly Questions Chapter 2 (Continued) 9. The difference in balance sheets pertains to the presentation of inventories in the current asset section. In a merchandising company, only merchandise inventory is shown. In a manufacturing company, three inventory accounts are included in the inventory account shown: finished goods, work in process, and raw materials. 10. Manufacturing costs are classified as direct materials, direct labour, or manufacturing overhead. 11. No, he is not correct. The distinction between direct and indirect materials is based on two criteria: (1) physical association and (2) the convenience of making the physical association. Materials which can not be easily associated with the finished product are considered indirect materials. 12. 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 saleable product. These costs relate to nonmanufacturing costs and therefore are not inventoriable costs. 13. The costs of raw materials that can be physically and directly associated with the finished product during the manufacturing process are called direct materials costs. The costs of factory employees whose work can be physically and directly associated with converting raw materials into finished goods are called the direct manufacturing labour costs. Direct manufacturing costs are the sum of all direct materials costs and direct labour costs. Indirect manufacturing costs consist 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 labour. Prime costs are the sum of all direct materials costs and direct labour costs. Conversion costs are the sum of all direct labour costs and manufacturing overhead costs, which together are the costs of converting raw materials into a final product. 14. A merchandising company shows beginning merchandise inventory, cost of goods purchased, and ending merchandise inventory. A manufacturing company shows beginning finished goods inventory, cost of goods manufactured, and ending finished goods inventory. 15. (a) 16. Raw materials inventory, beginning …………………………………………………………….. Raw materials purchases …………………………………………………………………………… Total raw materials available for use ……………………………………………………………. Raw materials inventory, ending …………………………………………………………………. Direct materials used ………………………………………………………………………… $ 12,000 180,000 192,000 15,000 $177,000 17. Direct materials used ………………………………………………………………………………… Direct labour used …………………………………………………………………………………….. Total manufacturing overhead ……………………………………………………………………. Total manufacturing costs ………………………………………………………………….. $240,000 200,000 150,000 $590,000 18. (a) (b) $616,000 $584,000 19. The order of inventories is finished goods, work in process and then raw materials. X = total cost of work in process. (b) X = cost of goods manufactured. Total cost of work in process ($26,000 + $590,000)……………………………….. Cost of goods manufactured ($616,000 – $32,000) ……………………………….. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-5 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 2-1 (a) (b) (c) (d) DM DL MO MO Frames and tires used in manufacturing bicycles. Wages paid to production workers. Insurance on factory equipment and machinery. Depreciation on factory equipment. BRIEF EXERCISE 2-2 (a) (b) (c) (d) (e) (f) (g) (h) Direct materials. Direct materials. Direct labour. Manufacturing overhead. Manufacturing overhead (Indirect materials). Direct materials. Direct materials. Manufacturing overhead (Indirect labour). BRIEF EXERCISE 2-3 (a) Product. (b) Period. (c) Period. (d) Product. (e) Period. (f) Product. BRIEF EXERCISE 2-4 Indirect labour is a variable cost because it increases in total directly and proportionately with the change in the activity level: $10,000 ÷ 3,000 units = $3.33 and $20,000 ÷ 6,000 units = $3.33. Supervisory salaries are a fixed cost because they remain the same in total regardless of changes in the activity level: $5,000 at both levels. Maintenance is a mixed cost because it increases in total but not proportionately with changes in the activity level: $4,000 ÷ 3,000 units = $1.33 and $7,000 ÷ 6,000 units = $1.167. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-6 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly BRIEF EXERCISE 2-5 VARIABLE COST Relevant Range FIXED COST Relevant Range $10,000 $10,000 8,000 8,000 6,000 6,000 4,000 4,000 2,000 2,000 0 20 40 60 80 100 0 20 Activity Level 40 60 80 100 Activity Level BRIEF EXERCISE 2-6 $80,000 Total Cost Line COST 60,000 Variable Cost Element 40,000 20,000 Fixed Cost Element 0 500 1,000 1,500 2,000 2,500 Direct Labour Hours Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-7 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly BRIEF EXERCISE 2-7 High Low Difference $16,490 – $12,330 = $4,160 8,200 – 5,000 = 3,200 $4,160 ÷ 3,200 = $1.30—Variable cost per kilometer. Total cost Less: Variable costs 8,200 × $1.30 5,000 × $1.30 Total fixed costs High $16,490 Low $12,330 10,660 $5,830 6,500 $5,830 The mixed cost is $5,830 plus $1.30 per kilometer. BRIEF EXERCISE 2-8 High Low Difference $65,000 – $32,000 = $33,000 40,000 – 18,000 = 22,000 $33,000 ÷ 22,000 Total cost Less: Variable costs 40,000 × $1.50 18,000 × $1.50 Total fixed costs = $1.50 per unit. Activity Level High Low $65,000 $32,000 60,000 000,000 $ 5,000 27,000 $ 5,000 The mixed cost is $5,000 plus $1.50 per unit produced. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-8 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly BRIEF EXERCISE 2-9 Direct Materials (a) (b) (c) (d) Product Costs Direct Factory Labour Overhead X X X X BRIEF EXERCISE 2-10 DIEKER COMPANY Balance Sheet December 31, 2012 Current assets Cash…………………………………………………………. Accounts receivable ………………………………….. Inventories Finished goods…………………………………… Work in process …………………………………. Raw materials …………………………………….. Prepaid expenses ……………………………………… Total current assets …………………….. $ 62,000 200,000 $71,000 87,000 73,000 231,000 38,000 $531,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-9 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly BRIEF EXERCISE 2-11 (a) Direct labour costs = prime costs + conversion costs – total manufacturing costs Direct labour = $195,000 + $140,000 – $270,000 = $65,000 Direct material costs = prime costs – direct labour costs Direct material costs = $195,000 – $65,000 = $130,000 Manufacturing overhead costs = conversion costs – direct labour costs Manufacturing overhead costs = $140,000 – $65,000 = $75,000 (b) Total costs of production = direct material + direct labour + overhead = $130,000 + $65,000 + $75,000 = $270,000 (c) Total period costs = $200,000 BRIEF EXERCISE 2-12 Direct Materials Used (1) (2) (3) Direct Labour Used Factory Overhead Total Manufacturing Costs $136,000 $81,000 $144,000 BRIEF EXERCISE 2-13 Total Manufacturing Costs (1) $136,000 (2) (3) Work in Process (1/1) Work in Process (12/31) Cost of Goods Manufactured $174,000 $123,000 $58,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-10 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO DO IT! REVIEW EXERCISES DO IT! 2-14 Period costs: Advertising Salaries of sales representatives Product costs: Blank CDs (DM) Depreciation of CD image burner (MO) Salary of factory manager (MO) Factory supplies used (MO) Paper inserts for CD cases (DM) CD plastic cases (DM) Salaries of factory maintenance employees (MO) Salaries of employees who burn music onto CDs (DL) Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-11 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly DO IT! 2-15 ROLEN MANUFACTURING COMPANY Cost of Goods Manufactured Schedule For the Month Ended April 30 Work in process, April 1 ………………………….. Direct materials ………………………………………. Raw materials, April 1 ………………………….. $ 10,000 Raw materials purchases …………………….. 98,000 Total raw materials available for use …….. 108,000 Less: Raw materials, April 30………………. 14,000 Direct materials used …………………………… $ 94,000 Direct labour …………………………………………… 60,000 Manufacturing overhead ………………………….. 180,000 Total manufacturing costs……………………….. Total cost of work in process …………………… Less: Work in process, April 30 ………………. Cost of goods manufactured ……………………. $ 5,000 334,000 $339,000 3,500 $335,500 DO IT! 2-16 Variable costs: Indirect labour, direct labour, and direct materials. Fixed costs: Property taxes and depreciation. Mixed costs: Utilities and maintenance. DO IT! 2-17 (a) Variable cost: ($18,750 – $16,200) ÷ (10,500 – 8,800) = $1.50 per unit Fixed cost: $18,750 – ($1.50 × 10,500 units) = $3,000 or $16,200 – ($1.50 × 8,800 units) = $3,000 (b) Total estimated cost to produce 8,500 units: = $3,000 + ($1.50 × 8,500) = $15,750 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-12 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO EXERCISES EXERCISE 2-18 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. (b) (c) (c) (c) (a) (b) (c) (c) (c) (a) Direct labour.* Manufacturing overhead. Manufacturing overhead. Manufacturing overhead. Direct materials. Direct labour. Manufacturing overhead. Manufacturing overhead (Indirect materials). Manufacturing overhead (Indirect labour). Direct materials. *or sometimes (c), depending on the circumstances EXERCISE 2-19 (a) Materials used in product …… DM Advertising expense ………….. Period Depreciation on plant ………. MOH Property taxes on plant ………… MOH Property taxes on store…..Period Delivery expense ……………….. Period Labour costs of assemblySales commissions ……………. Period line workers ……………………… DL Salaries paid to sales clerks … Period Factory supplies used ……… MOH (b) Product costs are recorded as a part of the cost of inventory, because they are an integral part of the cost of producing the product. Product costs are not expensed until the goods are sold and are reflected in the cost of goods sold account. Period costs are recognized as an expense when incurred. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-13 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-20 (a) Factory utilities …………………………………………………………….. Depreciation on factory equipment ………………………………… Indirect factory labour …………………………………………………… Indirect materials ………………………………………………………….. Factory manager’s salary ……………………………………………… Property taxes on factory building …………………………………. Factory repairs …………………………………………………………….. Manufacturing overhead ……………………………………………….. $ 15,600 12,650 48,900 80,800 13,000 2,500 2,000 $175,450 (b) Direct materials ……………………………………………………………. Direct labour ………………………………………………………………… Manufacturing overhead ……………………………………………….. Product costs ………………………………………………………………. $137,600 89,100 175,450 $402,150 (c) Depreciation on delivery trucks …………………………………….. Sales salaries ………………………………………………………………. Repairs to office equipment ………………………………………….. Advertising ………………………………………………………………….. Office supplies used …………………………………………………….. Period costs ………………………………………………………………… $ 8,800 46,400 2,300 18,000 5,640 $81,140 EXERCISE 2-21 1. 2. (c) (c) 3. 4. (a) (c) 5. 6. (b)* (d) 7. 8. (a) (b) 9. 10. (c) (c) *or sometimes (c), depending on the circumstances. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-14 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-22 1. (b) 2. (c) 3. (a) 4. (c) 5. (c) 6. (c) 7. (c) 8. (c) 9. (c) 10. (c) EXERCISE 2-23 (a) Variable Costs Vary in total directly and proportionately with changes in the activity level but remain constant on a per-unit basis. Fixed Costs Remain constant in total regardless of changes in the activity level but vary on a per-unit basis. Mixed Costs Contain both a variable and fixed cost element. They change in total but not proportionately with changes in the activity level and vary both in total and on a per-unit basis. (b) Using these criteria as a guideline, the classification is as follows: Direct materials Direct labour Utilities Variable Variable Mixed Rent Maintenance Supervisory salaries Fixed Mixed Fixed Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-15 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-24 (a) (b) The relevant range is 4,000 – 9,000 units of output since a straight-line relationship exists for both direct materials and rent within this range. (c) Variable cost per unit within the relevant range: (4,000 – 9,000 units) = Cost Units $10,000* = = $2 per unit 5,000* *Any costs and units within the relevant range could have been used to calculate the same unit cost of $2. (d) Fixed cost within the relevant range (4,000 to 9,000 units) = $7,000. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-16 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-25 (a) Maintenance Costs: ($2,705 – $2,484) ÷ (502 – 410) = $221 ÷ 92 = $2.40 variable cost per machine hour (rounded)* *Note: Use of different point(s) may result in different answer(s). 502 410 Machine Hours Machine Hours Total costs $2,705 $2,484 Less: Variable costs 502 × $2.40 1,205 984 410 × $2.40 Total fixed costs $ 1,500 $1,500 Thus, overhead costs are $1,500 per month plus $2.40 per machine hour. (b) Using the formula for overhead costs determined in (a), estimated costs for the coming month would be $1,500 + $2.40(850) = $3,540. (c) (1) using direct labour hours: $1,750 + $0.35(3,150) = $2,852.50 (2) using machine hours: $1,500 + $2.40(492) = $2,680.80 (d) Actual fixed and variable overhead costs are closer to the formula for the activity base of machine hours so it would appear that this would be the better activity base. ($1,500 vs. $1,525; $1,180.80 vs. $1,200) Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-17 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-26 1. Wood used in the production of furniture. 2. Fuel used in delivery trucks. 3. Straight-line depreciation on factory building. 4. Screws used in the production of furniture. 5. Sales staff salaries. 6. Sales commissions. 7. Property taxes. 8. Insurance on buildings. 9. Hourly wages of furniture craftsmen. 10. Salaries of factory supervisors. 11. Utilities expense. 12. Telephone bill. Variable. Variable. Fixed. Variable. Fixed. Variable. Fixed. Fixed. Variable. Fixed. Mixed. Mixed. EXERCISE 2-27 (a) Maintenance Costs: $5,000 8,000 – $2,800 = 3,000 $2,200 5,000 = $0.44 variable cost per machine hour Activity Level Total cost Less: Variable costs 8,000 × $.44 3,000 × $.44 Total fixed costs High $5,000 Low $2,800 3,520 00,000 $1,480 1,320 $1,480 Thus, maintenance costs are $1,480 per month plus $0.44 per machine hour. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-18 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-27 (Continued) (b) $5,000 Total Cost Line $4,000 COSTS Variable Cost Element $3,000 $2,000 $1,480 $1,000 Fixed Cost Element 0 2,000 4,000 6,000 8,000 Machine Hours EXERCISE 2-28 (a) Cost Direct materials Direct labour Utilities Property taxes Indirect labour Supervisory salaries Maintenance Depreciation Fixed Variable X X Mixed X X X X X X Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-19 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-28 (Continued) (b) Variable costs to produce 3,000 units = $7,500 + $15,000 + $4,500 = $27,000 Variable cost per unit = $27,000 ÷ 3,000 units = $9 per unit Variable cost portion of mixed cost = Total cost – Fixed portion Utilities: Variable cost to produce 3,000 units = $1,800 – $300 = $1,500 Variable cost per unit = $1,500 ÷ 3,000 units = $0.50 per unit Maintenance: Variable cost to produce 3,000 units = $1,100 – $200 = $900 Variable cost per unit = $900 ÷ 3,000 units = $0.30 per unit Cost to produce 5,000 units = (Variable costs per + Fixed cost unit × 5,000 units) = (($9 + $0.50 + $0.30) × 5,000) + $5,700* = $49,000 + $5,700 = $54,700 * Total fixed costs = $1,000 + $1,800 + $2,400 + $300 + $200 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-20 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-29 (a) (b) Delivery service (product) costs: Indirect materials Depreciation on delivery equipment Dispatcher’s salary Gas and oil for delivery trucks Drivers’ salaries Delivery equipment repairs Total Period costs: Property taxes on office building CEO’s salary Advertising Office supplies Office utilities Repairs on office equipment Total $ 8,400 11,200 7,000 2,200 15,000 300 $44,100 $ 2,870 22,000 1,600 650 990 680 $28,790 EXERCISE 2-30 (a) Work-in-process, 1/1 …………………………. Direct materials used ………………………… Direct labour …………………………………….. Manufacturing overhead Depreciation on plant ………………….. Factory supplies used ………………… Property taxes on plant ………………. Total manufacturing overhead …………… Total manufacturing costs…………………. Total cost of work-in-process ……………. Less: ending work-in-process ……………. Cost of goods manufactured……………… (b) Finished goods, 1/1 …………………………… Cost of goods manufactured …………….. Cost of goods available for sale…………. Finished goods, 12/31 ……………………….. Cost of goods sold ……………………………. $ 10,000 $120,000 110,000 $60,000 25,000 19,000 104,000 334,000 344,000 14,000 $330,000 $ 60,000 330,000 390,000 50,600 $339,400 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-21 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-31 CEPEDA MANUFACTURING COMPANY Cost of Goods Manufactured Schedule For the Year Ended December 31 Work in process inventory, (1/1) ……………….. $210,000 Direct materials Raw materials inventory, (1/1) ………….. $42,500 Raw materials purchases ………………… 165,000 Total raw materials available for use …… 207,500 Less: Raw materials inventory, (12/31)….. 17,500 Direct materials used ……………….. 190,000 Direct labour………………………………………….. 111,000 Manufacturing overhead Indirect labour …………………………………. $15,000 Factory depreciation ………………………… 36,000 Factory utilities ………………………………… 68,000 Total manufacturing overhead……… 119,000 Total manufacturing costs ………………………. 420,000 Total cost of work in process ………………….. 630,000 Less: Work in process inventory, (12/31)……… 80,000 Cost of goods manufactured …………………… $550,000 Calculations: Total raw materials available for use: Direct materials used……………………………………………….. Add: Raw materials inventory (12/31) ……………………… Total raw materials available for use …………………………. $190,000 17,500 $207,500 Raw materials inventory (1/1): Direct materials used ……………………………………………….. Add: Raw materials inventory (12/31) ……………………….. Less: Raw materials purchases ………………………………… Raw materials inventory (1/1) …………………………………… $190,000 17,500 (165,000) $ 42,500 Total cost of work in process: Cost of goods manufactured ……………………………………. Add: Work in process (12/31) …………………………………… Total cost of work in process …………………………………… $550,000 80,000 $630,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-22 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-31 (Continued) Total manufacturing costs: Total cost of work in process ………………………………………. Less: Work in process (1/1) …………………………………………. Total manufacturing costs …………………………………………… $630,000 (210,000) $420,000 Direct labour: Total manufacturing costs …………………………………………… Less: Total overhead …………………………………………………… Direct materials used …………………………………………. Direct labour ………………………………………………………………. $420,000 (119,000) (190,000) $ 111,000 EXERCISE 2-32 (a) + $57,400 + $46,500 = $175,650 (a) = $71,750 $252,100 – $11,000 = (f) (f) = $241,100 $175,650 + (b) = $221,500 (b) = $45,850 $130,000 + (g) + $102,000=$273,700 (g) = $41,700 $221,500 – (c) = $180,725 (c) = $40,775 $273,700 + (h) = $335,000 (h) = $61,300 $68,400 + $86,500 + $81,600 = (d) (d) = $236,500 $335,000 – $90,000 = (i) (i) = $245,000 $236,500 + $15,600 = (e) (e) = $252,100 Additional explanation to EXERCISE 2-32 solution: Case A (a) Total manufacturing costs …………………………………………… Less: Manufacturing overhead …………………………………….. Direct labour ……………………………………………………… Direct materials used ………………………………………………….. $175,650 (46,500) (57,400) $ 71,750 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-23 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-32 (Continued) (b) Total cost of work in process ………………………………………. Less: Total manufacturing costs ………………………………….. Work in process (1/1)…………………………………………………… $221,500 (175,650) $ 45,850 (c) Total cost of work in process ………………………………………. Less: Cost of goods manufactured ………………………………. Work in process (12/31) ……………………………………………….. $221,500 (180,725) $ 40,775 Case B (d) Direct materials used …………………………………………………… Direct labour……………………………………………………………….. Manufacturing overhead ……………………………………………… Total manufacturing costs …………………………………………… $ 68,400 86,500 81,600 $236,500 (e) Total manufacturing costs …………………………………………… Work in process (1/1)…………………………………………………… Total cost of work in process ………………………………………. $236,500 15,600 $252,100 (f) $252,100 (11,000) $241,100 Total cost of work in process ………………………………………. Less: Work in process (12/31) ……………………………………… Cost of goods manufactured ……………………………………….. Case C (g) Total manufacturing costs …………………………………………… Less: Manufacturing overhead …………………………………….. Direct materials used ………………………………………… Direct labour………………………………………………………………… $273,700 (102,000) (130,000) $ 41,700 (h) Total cost of work in process ………………………………………. Less: Total manufacturing costs ………………………………….. Work in process (1/1)…………………………………………………… $335,000 (273,700) $ 61,300 (i) $335,000 (90,000) $245,000 Total cost of work in process ………………………………………. Less: Work in process (12/31) ……………………………………… Cost of goods manufactured ……………………………………….. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-24 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-33 (a) (a) $127,000 + $140,000 + $89,000 = $356,000 (b) $356,000 + $33,000 – $360,000 = $29,000 (c) $430,000 – ($200,000 + $123,000) = $107,000 (d) $40,000 + $470,000 – $430,000 = $80,000 (e) $257,000 – ($80,000 + $100,000) = $77,000 (f) $257,000 + $60,000 – $80,000 = $237,000 (g) $308,000 – ($67,000 + $75,000) = $166,000 (h) $308,000 + $45,000 – $270,000 = $83,000 (b) IKERD COMPANY Cost of Goods Manufactured Schedule For the Year Ended December 31, 2012 Work in process, January 1 …………………………. Direct materials …………………………………………… Direct labour ………………………………………………. Manufacturing overhead ……………………………… Total manufacturing costs ……………………. Total cost of work in process ………………………. Less: Work in process inventory, December 31 …………………………………. Cost of goods manufactured ……………………….. $ 33,000 $127,000 140,000 89,000 356,000 389,000 29,000 $360,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-25 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-34 (a) AIKMAN CORPORATION Cost of Goods Manufactured Schedule For the Month Ended June 30, 2012 Work in process, June 1 ……………………….. Direct materials used ……………………………. Direct labour………………………………………… Manufacturing overhead Indirect factory labour …………………… Factory manager’s salary ………………. Indirect materials…………………………… Depreciation, factory equipment …….. Maintenance, factory equipment …….. Factory utilities ……………………………… Total manufacturing overhead ….. Total manufacturing costs ……………………. Total cost of work in process ……………….. Less: Work in process, June 30……………. Cost of goods manufactured ………………… (b) $ 3,000 $25,000 30,000 $4,500 3,000 2,200 1,400 1,800 400 13,300 68,300 71,300 2,800 $68,500 AIKMAN CORPORATION Income Statement (Partial) For the Month Ended June 30, 2012 Net sales ………………………………………………………. Cost of goods sold Finished goods inventory, June 1 ……………. Cost of goods manufactured [from (a)] ……… Cost of goods available for sale………………. Finished goods inventory, June 30 ………….. Cost of goods sold ………………………….. Gross profit ………………………………………………….. $87,100 $ 5,000 68,500 73,500 9,500 64,000 $23,100 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-26 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-35 (a) DANNER, LETOURNEAU, AND MAJEWSKI Schedule of Cost of Contract Services Provided For the Month Ended August 31, 2012 Supplies used (direct materials) …………………………….. $ 2,500 Salaries of professionals (direct labour)…………………. 15,600 Service overhead: Utilities for contract operations …………………………. $1,900 Contract equipment depreciation ………………………. 900 Insurance on contract operations ……………………… 800 Janitorial services for professional offices ………… 300 Total overhead ……………………………………………. 3,900 Cost of contract services provided ……………………. $22,000 (b) The costs not included in the cost of contract services provided would all be classified as period costs. As such, they would be reported on the income statement under administrative expenses. EXERCISE 2-36 (a) Work-in-process, 1/1 ………………………… Direct materials Materials inventory, 1/1 ………………. $ 22,000 Materials purchased…………………… 170,000 Materials available for use………….. 192,000 Less: Materials inventory, 12/31 …. 30,000 Direct materials used ……………………….. Direct labour ……………………………………. Manufacturing overhead …………………… Total manufacturing costs………………… Total cost of work-in-process …………… Less: Work-in-process, 12/31 ……………. Cost of goods manufactured…………….. (b) Sales………………………………………………. Cost of goods sold Finished goods, 1/1 …………………… Cost of goods manufactured …….. Cost of goods available for sale …. Finished goods, 12/31………………… Cost of goods sold ………………. Gross profit……………………………………… $ 18,500 $162,000 200,000 183,000 545,000 563,500 17,200 $546,300 $920,000 $ 27,000 546,300 573,300 31,000 542,300 $377,700 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-27 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-36 (Continued) (c) Current assets Inventories Finished goods……………………………………….. Work in process …………………………………….. Raw materials …………………………………………. $31,000 17,200 30,000 $78,200 (d) In a merchandising company’s income statement, the only difference would be in the computation of cost of goods sold. Beginning and ending finished goods would be replaced by beginning and ending merchandise inventory, and cost of goods manufactured would be replaced by purchases. In a merchandising company’s balance sheet, there would be one inventory account (merchandise inventory) instead of three. EXERCISE 2-37 1. 2. 3. 4. 5. 6. 7. 8. (a) (a) (a), (c) (b) 1 (a) (a) (a) (b), (c) 9. 10. 11. 12. 13. 14. 15. 16. (a) (a), (b) (b) (b) (a) (a) (a) (a) Only ending inventory is reflected in the balance sheet. Opening inventory would be reflected as the closing inventory of the previous year in a comparative balance sheet. 1 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-28 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-38 (a) KANANASKIS MANUFACTURING Cost of Goods Manufactured Schedule For the Month Ended June 30, 2012 Work in process inventory, June 1 ……………. $ 5,000 Direct materials Raw materials inventory, June 1 ……… $ 10,000 Raw materials purchases ………………… 64,000 Total raw materials available for use …… 74,000 Less: Raw materials inventory, June 30 .. 13,100 Direct materials used ………………………. 60,900 Direct labour …………………………………………. 57,000 Manufacturing overhead Indirect labour …………………………………. $7,500 Factory insurance ……………………………. 4,000 Machinery depreciation ……………………. 5,000 Factory utilities………………………………… 3,100 Machinery repairs ……………………………. 1,800 Miscellaneous factory costs …………….. 1,500 Total manufacturing overhead……… 22,900 Total manufacturing costs ………………………. 140,800 Total cost of work in process ………………….. 145,800 Less: Work in process inventory, June 30 …… 13,000 Cost of goods manufactured …………………… $132,800 (b) KANANASKIS MANUFACTURING (Partial) Balance Sheet As at June 30, 2012 Current assets Inventories Finished goods …………………………………… Work in process………………………………….. Raw materials …………………………………….. $ 6,000 13,000 13,100 $32,100 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-29 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 2-39 (a) Raw Materials account: (Beg 0 + purchases 5,000 – Raw materials used 4,650) × $8 = $2,800 Work in Process account Sept 30th: (4,600 × 10%) × $8 = $3,680 Finished Goods account: (4,600 × 90% × 25%) × $8 = $8,280 Cost of Goods Sold account: (4,600 × 90% × 75%) × $8 = $24,840 Selling Expenses account: 50 × $8 = $400 Proof of cost of head lamps allocated (5,000 × $8 = $40,000) Raw materials Work in process Finished goods Cost of goods sold Selling expenses Total (b) To: $ 2,800 3,680 8,280 24,840 400 $40,000 Chief Accountant From: Student Subject: Statement Presentation of Accounts Two accounts will appear in the income statement. Cost of Goods Sold will be deducted from net sales in determining gross profit. Selling expenses will be shown under operating expenses and will be deducted from gross profit in determining net income. Sometimes, the calculation for Cost of Good Sold is shown on the income statement. In these cases, the balance in Finished Goods inventory would also be shown on the income statement. The other accounts associated with the head lamps are inventory accounts which contain end-of-period balances. Thus, they will be reported under inventories in the current assets section of the balance sheet in the following order: finished goods, work in process, and raw materials. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-30 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO PROBLEMS: SET A PROBLEM 2-40A (a) Cost Item Product Costs Direct Direct Manufact. Materials Labour Overhead Maintenance on factory equipment Factory manager’s salary Depreciation on factory building Rent on factory equipment Insurance on factory building Raw materials $20,000 Utility costs for factory Wages for assembly line workers $55,000 Miscellaneous materials Advertising for helmets Sales commissions Supplies for general office Depreciation on office equipment 00,0 00 000,000 $20,000 $55,000 (b) Total production costs Direct materials Direct labour Manufacturing overhead Total production cost Period Costs $ 1,300 4,000 700 6,000 3,000 800 2,000 000,000 $17,800 $ 8,000 5,000 200 500 $13,700 $20,000 55,000 17,800 $92,800 Production cost per helmet = $92,800/1,000 = $92.80 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-31 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-41A (a) Product Costs Direct Direct Manufact. Period Cost Item Materials Labour Overhead Costs Raw materials (1) $60,000 Wages for workers (2) $65,000 Rent on equipment $ 1,500 7,500 Indirect materials (3) Factory supervisor’s salary 3,500 Janitorial costs 1,400 Advertising $6,000 Depreciation – factory building (4) 800 Property taxes – factory building (5) 000,000 000,000 600 00,000 $60,000 $65,000 $15,300 $6,000 (1) (2) (3) (4) (5) $24 × 2,500 = $60,000. $13 × 2 hrs × 2,500 = $65,000. $3 × 2,500 = $7,500. $9,600/12 = $800. $7,200/12 = $600. (b) Total production costs Direct materials Direct labour Manufacturing overhead Total production cost $ 60,000 65,000 15,300 $140,300 Production cost per driver = $140,300 ÷ 2,500 = $56.12 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-32 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-42A (a) Case 1 Total manufacturing costs = (a) (a) = $6,300 + $3,000 + $6,000 = $15,300 Ending work in process inventory = (b) $15,300 + $1,000 – (b) = $14,600 (b) = $15,300 + $1,000 – $14,600 = $1,700 Beginning finished goods inventory = (c) $14,600 + (c) = $18,300 (c) = $18,300 – $14,600 = $3,700 Cost of goods sold = (d) (d) = $18,300 – $1,500 = $16,800 Gross profit = (e) (e) = ($22,500 – $1,500) – $16,800 = $4,200 Net income = (f) (f) = $4,200 – $2,700 = $1,500 Case 2 Direct materials used = (g) (g) + $8,000 + $4,000 = $18,000 (g) = $18,000 – $8,000 – $4,000 = $6,000 Beginning work in process inventory = (h) $18,000 total manufacturing costs + (h) beginning work in process – $3,000 ending work in process = $22,000 (h) = $22,000 + $3,000 – $18,000 = $7,000 Cost of goods sold = (k) (k) = $3,300 beginning inventory + $22,000 Cost of goods manufactured – $2,500 ending inventory = $22,800 (Note: Item (i) can only be solved after item (k) is solved.) Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-33 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-42A (Continued) Sales = (i) ((i) – $1,400) – (k) = $6,000 ((i) – $1,400) – $22,800 = $6,000 (i) = $1,400 + $22,800 + $6,000 = $30,200 Goods available for sale = (j) (j) = $22,000 + $3,300 = $25,300 Operating expenses = (l) $6,000 – (l) = $2,200 (l) = $3,800 (b) CASE 1 Cost of Goods Manufactured Schedule Work in process, beginning …………………………… Direct materials …………………………………………….. Direct labour…………………………………………………. Manufacturing overhead ……………………………….. Total manufacturing costs………………………. Total cost of work in process ………………………… Less: Work in process, ending ……………………… Cost of goods manufactured …………………………. (c) $ 1,000 $6,300 3,000 6,000 15,300 16,300 1,700 $14,600 CASE 1 Income Statement Sales ……………………………………………………………. Less: Sales discounts ………………………………….. Net sales ………………………………………………………. Cost of goods sold Finished goods inventory, beginning ………. Cost of goods manufactured …………………… Cost of goods available for sale………………. Less: Finished goods inventory, ending …. Cost of goods sold ………………………….. Gross profit……………………………………………. Operating expenses………………………………………. Net income …………………………………………………… $22,500 1,500 $21,000 3,700 14,600 18,300 1,500 16,800 4,200 2,700 $ 1,500 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-34 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-42A (Continued) CASE 1 (Partial) Balance Sheet Current assets Cash ……………………………………………………… Receivables (net)……………………………………. Inventories Finished goods ……………………………….. Work in process………………………………. Raw materials …………………………………. Prepaid expenses…………………………………… Total current assets ………………………… $ 3,000 10,000 $1,500 1,700 700 3,900 200 $17,100 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-35 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-43A (a) STELLAR MANUFACTURING COMPANY Cost of Goods Manufactured Schedule For the Year Ended December 31, 2012 Work in process, (1/1) ……………………. Direct materials Raw materials inventory, (1/1) …. Raw materials purchases ……….. Total raw materials available for use ……………………………….. Less: Raw materials inventory, (12/31)………………………. Direct materials used ……………… Direct labour…………………………………. Manufacturing overhead Plant manager’s salary …………… Factory utilities ………………………. Indirect labour ……………………….. Factory machinery depreciation … Factory property taxes ……………. Factory insurance ………………….. Factory repairs ………………………. Total manufacturing overhead ……….. Total manufacturing costs …………….. Total cost of work in process ………… Less: Work in process, (12/31)……….. Cost of goods manufactured …………. $ 9,500 $ 47,000 62,500 109,500 44,800 $ 64,700 145,100 40,000 12,900 18,100 7,700 6,900 7,400 800 93,800 303,600 313,100 7,500 $305,600 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-36 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-43A (Continued) (b) STELLAR MANUFACTURING COMPANY (Partial) Income Statement For the Year Ended December 31, 2012 Sales revenues Sales ………………………………………………….. Less: Sales discounts………………………….. Net sales …………………………………………….. Cost of goods sold Finished goods inventory, (1/1) ……………. Cost of goods manufactured………………… Cost of goods available for sale …………… Less: Finished goods inventory, (12/31) .. Cost of goods sold ……………………….. Gross profit ………………………………………… (c) $465,000 2,500 $462,500 85,000 305,600 390,600 77,800 312,800 $149,700 STELLAR MANUFACTURING COMPANY (Partial) Balance Sheet As at December 31, 2012 Assets Current assets Cash …………………………………………………… Accounts receivable ……………………………. Inventories: Finished goods …………………………….. Work in process……………………………. Raw materials ………………………………. Total current assets ……………….. $ 28,000 27,000 $77,800 7,500 44,800 130,100 $185,100 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-37 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-44A (a) TOMBERT COMPANY Cost of Goods Manufactured Schedule For the Month Ended October 31, 2012 Work in process, October 1 ………….. Direct materials Raw materials inventory, October 1 ………………………….. $ 18,000 Raw materials purchases …………………………. 264,000 Total raw materials available for use ………………………………. 282,000 Less: Raw materials inventory, October 31 ………………. 34,000 Direct materials used …………….. Direct labour………………………………… Manufacturing overhead Rent on factory facility …………… 60,000 Depreciation on factory equipment …………………………. 31,000 Indirect labour ………………………. 28,000 Factory utilities* ……………………. 8,400 Factory insurance**……………….. 4,800 Total manufacturing overhead ………. Total manufacturing costs ……………. Total cost of work in process ……….. Less: Work in process, October 31…… Cost of goods manufactured ………… $ 16,000 $248,000 190,000 132,200 570,200 586,200 14,000 $572,200 **$12,000 × 70% = $8,400 **$8,000 × 60% = $4,800 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-38 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-44A (Continued) (b) TOMBERT COMPANY Income Statement For the Month Ended October 31, 2012 Sales (net) ………………………………………………… Cost of goods sold Finished goods inventory, October 1 …… Cost of goods manufactured……………….. Cost of goods available for sale ………….. Less: Finished goods inventory, October 31 ……………………………. Cost of goods sold ………………………. Gross profit ………………………………………………. Operating expenses Advertising expense …………………………… Selling and administrative salaries ………. Depreciation expense—sales equipment ………………………………………. Utilities expense* ……………………………….. Insurance expense** …………………………… Total operating expenses …………….. Net income ……………………………………………….. $780,000 $ 30,000 572,200 602,200 48,000 554,200 225,800 90,000 75,000 45,000 3,600 3,200 216,800 $ 9,000 **$12,000 × 30% **$8,000 × 40% Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-39 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-45A (a) Raw materials inventory, beginning …………… Raw material purchased1 ………………………….. Raw materials available for use …………………. Less: Raw materials inventory, ending ……… Raw materials used in production $ 9,600 28,800 38,400 10,400 $28,000 1 28,000 + $10,400 = $38,400 $38,400 – $9,600 = $28,800 (b) Work in process inventory, beginning ……….. Manufacturing costs added ………………………. Total work in process during the month …….. Less: Work in process inventory, ending ….. Cost of goods manufactured2 2 $14,600 + $160,000 – $13,000 = $161,600 (c) Finished goods inventory, beginning…………. Cost of goods manufactured …………………….. Cost of goods available for sale ………………… Less: finished goods inventory, ending…….. Cost of goods sold3 3 $ 14,600 160,000 174,600 13,000 $161,600 $ 9,600 161,600 171,200 9,200 $162,000 $9,600 + $161,600 – $9,200 = $162,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-40 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-46A (a) Cost of goods sold = manufacturing cost per unit × number of units sold Cost of goods sold = ($3,000,000 ÷ 300,000) × 298,500 = $2,985,000 (b) Gross Profit = Sales – Cost of goods sold = ($18 × 298,500) – $2,985,000 = $2,388,000 (c) Cost of finished goods = number of units in inventory × per unit product cost Cost of finished goods = (300,000 – 298,500) × $10.001 = $15,000 1 $3,000,000 ÷ 300,000 = $10.00 per unit Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-41 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-47A (1)(a) Raw materials inventory, beginning………………. $18,000 Plus: Raw material purchased ……………………… 100,000 Raw materials available for use…………………….. 118,000 Less: Raw materials inventory, ending…………. 18,000 Raw materials used in production ………………… 100,000 Less: Indirect material…………………………………. 10,000 Direct material used …………………………………….. $ 90,000 (b) Manufacturing costs for the month Less: Direct material used ……………………….. Less: Manufacturing overhead …………………. Direct labour …………………………………………… $285,000 90,000 115,000 $80,000 (c) Work in process, beginning ………………………….. $ 8,000 Plus: Manufacturing costs for the month ……… 285,000 Total cost of work in process ……………………….. 297,000 Less: Work in process, ending …………………….. 20,000 Cost of goods manufactured*……………………….. $277,000 *this is the value of product transferred to finished goods (d) Cost of goods sold + 40% mark-up = Sales Sales = 140% × Cost of goods sold Cost of goods sold = $420,000 ÷ 1.40 = $300,000 (e) Cost of goods sold (from (d)) …………………………. $300,000 Plus: Finished goods inventory, ending …………. 20,000 Goods available for sale ………………………………… 320,000 Less: Cost of goods manufactured ………………… 277,000 Finished goods inventory, beginning ……………… $ 43,000 (2) Variable costs vary in total directly and proportionately with changes in the activity level but remain constant on a per-unit basis. Fixed costs remain constant in total regardless of changes in the activity level but vary on a per-unit basis. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-42 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-48A (a) Raw materials used in production ………………….. $180,000 Plus: Raw materials inventory, ending …………… 55,000 Raw materials available for use ………………………. 235,000 Less: Raw materials inventory, beginning ………. 25,000 Raw material purchased …………………………………. $210,000 (b) Cost incurred for the month (10,000 hrs × $15) … $150,000 Plus: Beginning of the month accrual …………….. 10,000 160,000 Less: End of the month accrual ……………………… 20,000 Cash disbursements for labour ………………………. $140,000 (c) Work in process inventory, beginning…………….. $ 15,000 Plus: Materials used in production ………………… 180,000 Labour costs (10,000 hrs × $15) ……………. 150,000 Manufacturing overhead ………………………. 100,000 445,000 Less: Work in process inventory, ending………… 4,500 Cost of goods transferred to finished goods …… $440,500 (d) Cost of goods sold…………………………………………. $400,000 Plus: Finished goods inventory, ending …………. 50,000 Goods available for sale …………………………………. 450,000 Less: Transferred from work in process (c)…….. 440,500 Finished goods inventory, beginning ………………. $ 9,500 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-43 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO PROBLEMS: SET B PROBLEM 2-49B (a) Cost Item Product Costs Direct Direct Manufact. Materials Labour Overhead Maintenance costs on factory building Factory manager’s salary Advertising for helmets Sales commissions Depreciation on factory building Rent on factory equipment Insurance on factory building Raw materials $20,000 Utility costs for factory Supplies for general office Wages for assembly-line workers $54,000 Depreciation on office equipment Miscellaneous materials 000,000 000,000 $20,000 $54,000 (b) Total production costs Direct materials Direct labour Manufacturing overhead Total production cost Period Costs $ 1,500 4,000 8,000 5,000 700 6,000 3,000 800 200 2,000 $18,000 500 000,000 $13,700 $20,000 54,000 18,000 $92,000 Production cost per motorcycle helmet = $92,000 ÷ 1,000 = $92.00 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-44 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-50B (a) Product Costs Direct Direct Manufact. Cost Item Materials Labour Overhead Raw materials (1) $57,500 Wages for workers (2) $65,000 Rent on equipment $ 1,300 7,500 Indirect materials (3) Factory supervisor’s salary 3,500 Janitorial costs 1,400 Advertising Depreciation – factory (4) 700 Property taxes – factory (5) 000,000 000,000 600 $57,500 $65,000 $15,000 (1) (2) (3) (4) (5) Period Costs $6,000 00,000 $6,000 $23 × 2,500 = $57,500. $13 × 2 hours × 2,500 = $65,000. $3 × 2,500 = $7,500. $8,400 ÷ 12 = $700. $7,200 ÷ 12 = $600. (b) Total production costs Direct materials Direct labour Manufacturing overhead Total production cost $ 57,500 65,000 15,000 $137,500 Production cost per racket = $137,500 ÷ 2,500 = $55.00. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-45 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-51B (a) Case 1 Total manufacturing costs = (a) (a) = $6,300 + $3,000 + $6,000 = $15,300 Ending work in process inventory = (b) $15,300 + $1,000 – (b) = $15,800 (b) = $15,300 + $1,000 – $15,800 = $500 Beginning finished goods inventory = (c) (c) + $15,800 = $18,300 (c) = $18,300 – $15,800 = $2,500 Cost of goods sold = (d) (d) = $18,300 – $1,200 = $17,100 Gross profit = (e) (e) = ($22,500 – $1,500) – $17,100 = $3,900 Net Income = (f) (f) = $3,900 – $2,700 = $1,200 Case 2 Direct materials used = (g) (g) + $4,000 + $5,000 = $16,000 (g) = $16,000 – $4,000 – $5,000 = $7,000 Beginning work in process inventory = (h) $16,000 + (h) – $2,000 = $20,000 (h) = $20,000 + $2,000 – $16,000 = $6,000 Goods available for sale = (j) (j) = $20,000 + $5,000 = $25,000 Cost of goods sold = (k) (k) = $25,000 – $2,500 = $22,500 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-46 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-51B (Continued) (Note: Item (i) can only be solved after items (j) and (k) are solved.) Sales = (i) ((i) – $1,200) – (k) = $6,000 ((i) – $1,200) – $22,500 = $6,000 (i) = $1,200 + $22,500 + $6,000 = $29,700 Operating expenses = (l) $6,000 – (l) = $2,200 (l) = $3,800 (b) CASE 1 Cost of Goods Manufactured Schedule Work in process, beginning …………………………… Direct materials …………………………………………….. Direct labour ………………………………………………… Manufacturing overhead ……………………………….. Total manufacturing costs ……………………… Total cost of work in process ………………………… Less: Work in process, ending ……………………… Cost of goods manufactured …………………………. (c) $ 1,000 $6,300 3,000 6,000 15,300 16,300 500 $15,800 CASE 1 Income Statement Sales …………………………………………………………… Less: Sales discounts …………………………………. Net sales ……………………………………………………… Cost of goods sold Finished goods inventory, beginning ……… Cost of goods manufactured………………….. Cost of goods available for sale …………….. Finished goods inventory, ending ………….. Cost of goods sold …………………………. Gross profit …………………………………………………. Operating expenses …………………………………….. Net income ………………………………………………….. $22,500 1,500 $21,000 $ 2,500 15,800 18,300 1,200 17,100 3,900 2,700 $ 1,200 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-47 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-51B (Continued) CASE 1 (Partial) Balance Sheet Current assets Cash …………………………………………………….. Receivables (net) …………………………………… Inventories Finished goods …………………………………. Work in process ……………………………….. Raw materials …………………………………… Prepaid expenses ………………………………….. Total current assets ……………………… $ 3,000 10,000 $1,200 500 700 $2,400 200 $15,600 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-48 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-52B (a) RUIZ MANUFACTURING COMPANY Cost of Goods Manufactured Schedule For the Year Ended December 31, 2012 Work in process inventory (1/1). Direct materials Raw materials inventory (1/1) .. Raw materials purchases ……… Raw materials available for use Less: Raw materials inventory (12/31) ……………………… Direct materials used ………. Direct labour …………………………. Manufacturing overhead Plant manager’s salary ……. Indirect labour ………………… Factory utilities……………….. Factory machinery depreciation ………………… Factory insurance …………… Factory property taxes…….. Factory repairs ……………….. Total manufacturing overhead… Total manufacturing costs . Total cost of work in process …. Less: Work in process, (12/31) . Cost of goods manufactured ….. $ 9,500 $ 47,000 62,500 109,500 44,200 $ 65,300 145,100 40,000 18,100 12,900 7,700 7,400 6,100 800 93,000 303,400 312,900 8,000 $304,900 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-49 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-52B (Continued) (b) RUIZ MANUFACTURING COMPANY (Partial) Income Statement For the Year Ended December 31, 2012 Sales revenues Sales………………………………………………….. Less: Sales discounts ………………………… Net sales ……………………………………………. Cost of goods sold Finished goods inventory, (1/1)……………. Cost of goods manufactured (see schedule) ……………………………………….. Cost of goods available for sale…………… Finished goods inventory, (12/31)………… Cost of goods sold ………………………. Gross profit ………………………………………………. (c) $465,000 2,500 $462,500 85,000 304,900 389,900 67,800 322,100 $140,400 RUIZ MANUFACTURING COMPANY (Partial) Balance Sheet As at December 31, 2012 Assets Current assets Cash ………………………………………………….. Accounts receivable …………………………… Inventories Finished goods ……………………………. Work in process …………………………… Raw materials ……………………………… Total current assets ………………. $ 28,000 27,000 $67,800 8,000 44,200 120,000 $175,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-50 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-53B (a) Prime costs = direct materials + direct labour Prime costs = $200,000 + $160,000 = $360,000 (b) Conversion costs = direct labour + manufacturing overhead Conversion costs = $160,000 + $128,000* = $288,000 *Manufacturing overhead = ($160,000/$10) × $8 (c) Cost of goods manufactured = Beginning work in process inventory + total manufacturing costs1 – Ending work in process inventory 1 $ 80,000 488,000 568,000 50,000 $518,000 $200,000 + $160,000 + $128,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-51 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-54B (a) Let GP = Gross profit GP – non-manufacturing costs = net income GP = $50,000 + $170,000 = $220,000 (b) Let COGS = Cost of goods sold Sales – COGS = gross profit COGS = $560,000 – $220,000 = $340,000 (c) Let EFI = Ending finished goods inventory EFI = Beginning finished goods inventory + cost of goods manufactured – COGS EFI = $270,000 + $260,000 – $340,000 = $190,000 (d) Let TMC = total manufacturing costs Let BWI = Beginning work in process inventory Let EWI = Ending work in process inventory Let COGM = Cost of goods manufactured BWI + TMC – EWI = COGM $110,000 + TMC – $0 = $260,000 TMC = $150,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-52 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-55B (1)(a) Raw materials inventory, beginning ……………… Plus: Raw material purchased……………………… Raw materials available for use ……………………. Less: Direct material used …………………………… Less: Indirect material transferred out …………. Raw materials inventory, ending …………………… $28,000 150,000 178,000 125,000 53,000 20,000 $ 33,000 (b) Manufacturing costs for the month……………. Less: Direct material used ……………………….. Less: Manufacturing overhead …………………. Direct labour …………………………………………… $498,000 125,000 145,000 $228,000 (c) Work in process, beginning………………………….. Plus: Manufacturing costs for the month ……… Total cost of work in process ……………………….. Less: Work in process, ending…………………….. Cost of goods manufactured* ………………………. $ 38,000 498,000 536,000 30,000 $506,000 *this is the value of product transferred to finished goods (d) Cost of goods sold + 30% mark-up = Sales Sales = 130% × CGS CGS = $780,000 ÷ 1.30 = $600,000 (e) Cost of goods sold (from (d)) ……………………….. $600,000 Plus: Finished goods inventory, ending ……….. 25,000 Goods available for sale ………………………………. 625,000 Less: Cost of goods manufactured………………. 506,000 Finished goods inventory, beginning ……………. $119,000 (2) Variable costs vary in total directly and proportionately with changes in the activity level but remain constant on a per-unit basis. Fixed costs remain constant in total regardless of changes in the activity level but vary on a per-unit basis. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-53 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-56B (a) AGLER COMPANY Cost of Goods Manufactured Schedule For the Month Ended August 31, 2012 Work in process, August 1 ……………… Direct materials Raw materials inventory, August 1 ……………………………… Raw materials purchases ………… Total raw materials available for use ………………….. Less: Raw materials inventory, August 31………………….. Direct materials used ………………. Direct labour………………………………….. Manufacturing overhead Rent on factory facilities ………….. Depreciation on factory equipment …………………………… Indirect labour ………………………… Factory utilities* ……………………… Factory insurance**…………………. Total manufacturing overhead ……….. Total manufacturing costs……….. Total cost of work in process …………. Less: Work in process, August 31 ………………………… Cost of goods manufactured ………….. $ 25,000 $ 19,500 200,000 219,500 30,000 $189,500 160,000 $ 60,000 35,000 20,000 5,000 3,500 123,500 473,000 498,000 21,000 $477,000 *$10,000 × 50% **$5,000 × 70% Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-54 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-56B (Continued) (b) AGLER COMPANY Income Statement For the Month Ended August 31, 2012 Sales (net) ………………………………………………….. Cost of goods sold Finished goods inventory, August 1………. Cost of goods manufactured…………………. Cost of goods available for sale ……………. Less: Finished goods inventory, August 31 ………………………………. Cost of goods sold ………………………… Gross profit ………………………………………………… Operating expenses Advertising expense …………………………….. Selling and administrative salaries ………… Depreciation on sales equipment ………….. Utilities expense* …………………………………. Insurance expense** …………………………….. Total operating expenses ………………. Net income …………………………………………………. $675,000 $ 40,000 477,000 517,000 59,000 458,000 217,000 75,000 70,000 50,000 5,000 1,500 201,500 $ 15,500 *$10,000 × 50% **$5,000 × 30% Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-55 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-57B (a) Cost of goods sold = $390 – $70 = $320 million (b) Total factory overhead cost = $320 – $80 – $180 = $60 million (c) Selling and administrative expenses = $70 – $22 = $48 million (d) Total product costs = DM + DL + MOH = $80 + $180 + $60 = $320 million (e) Total period costs = $48 million (f) Prime cost = DM + DL = $80 + $180 = $260 million (g) Conversion cost = DL + MOH = $180 + $60 = $240 million (h) Cost of goods manufactured = $0 + $320 – $0 = $320 million Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-56 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-58B Abbreviations used: Let CON = Conversion cost Let FOH = Factory overhead costs Let PRI = Prime cost Let TMC = Total manufacturing costs BDMI is Beginning Direct Material Inventory EDMI is Ending Direct Materials Inventory (a) Calculations: Gross profit = $900,000 × 20% = $180,000 Cost of goods sold = $900,000 – $180,000 = $720,000 CON = $360,000 + (40% × CON) (0.6 × CON) = $360,000 CON = $600,000 FOH = $600,000 – $360,000 = $240,000 PRI = 70% × TMC DM + DL = 0.70(DM + DL + FOH) 1.0DM – 0.70DM = 0.70(DL + FOH) – DL 0.30DM = 0.70($360,000 + 240,000) – $360,000 DM = $200,000 Total manufacturing costs = $200,000 + $360,000 + $240,000 = $800,000 Ending WIP = 10% × TMC = 0.10 × $800,000 = $80,000 COGM = BWIP + TCM – EWIP = $68,000 + $800,000 – $80,000 = $788,000 BFI + COGM – EFI = COGS EFI = $30,000 + $788,000 – $720,000 = $98,000 EDMI = BDMI + DM Purchases – DM Used EDMI = $32,000 + $320,000 – $200,000 = $152,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-57 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly PROBLEM 2-58B (Continued) MEDIUM-SIZED COMPANY Cost of Goods Manufactured Schedule For the month ended January 31, 2012 Work in process, beginning ………………………….. Direct materials Direct materials inventory, January 1 ……………………………. $ 32,000 Direct materials purchases………. 320,000 Total direct materials available for use ………………….. 352,000 Less: Direct materials inventory, January 31 ………………… 152,0002 Direct materials used …………………………….. $200,000 Direct labour………………………………………………… 360,000 Manufacturing overhead ………………………………. 240,000 Total manufacturing costs……………………… Total cost of work in process ……………………….. Less: Work in process, ending …………………….. Cost of goods manufactured ………………………… $ 68,000 800,000 868,000 80,0003 $788,000 (b) Inventories destroyed: Finished goods Work in process Direct materials Total $98,0001 80,0003 152,0002 $330,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-58 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO CASES CASE 2-59 Calculations to complete the data for operations in 2012: Raw materials1 inventory, beginning ……………….. Raw material purchased …………………………………. Raw materials available for use ………………………. Direct materials used …………………………………….. Raw materials inventory, ending …………………….. 1 $13,000 13,000 26,000 20,000 $ 6,000 Assume all raw materials are used as direct materials Direct materials ……………………………………………… Direct labour …………………………………………………. Factory overhead …………………………………………… Manufacturing costs added during the year …….. $20,000 25,000 8,000 $53,000 Work in process inventory, beginning …………….. Manufacturing costs (see above) ……………………. Total work in process during the year ……………… Less: Work in process inventory, ending ……….. Cost of goods manufactured…………………………… $ 8,000 53,000 61,000 7,000 $54,000 Finished goods inventory, beginning ………………. Plus: Cost of goods manufactured (see above) . Cost of goods available for sale ……………………… Less: Cost of goods sold ………………………………. Finished goods inventory, ending …………………… $ 6,000 54,000 60,000 55,000 $ 5,000 Sales ($9,000 + $55,000) …………………………………. $64,000 Less: Cost of goods sold (given) ……………………. 55,000 Gross profit (given) ………………………………………… 9,000 Less: Operating expenses ($9,000 – ($4,000)) …. 13,000 Operating income (loss) …………………………………. $ (4,000) Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-59 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly CASE 2-59 (Continued) BYDO INC Cost of Goods Manufactured Schedule For the Year Ended December 31, 2012 Work in process, beginning ………………….. Direct materials: Raw materials inventory, beginning …….. Plus: Raw materials purchases …………… Total raw materials available for use ……. Less: Raw materials inventory, ending … Direct materials used ……………………………. Direct labour ……………………………………….. Manufacturing overhead ………………………. Total manufacturing costs ………………… Total cost of work in process………………… Less: Work in process, ending …………….. Cost of goods manufactured ………………… $8,000 $13,000 13,000 26,000 6,000 $20,000 25,000 8,000 53,000 61,000 7,000 $54,000 BYDO INC Schedule of Cost of Goods Sold For the Year Ended December 31, 2012 Finished goods inventory, beginning………………… Plus: Cost of goods manufactured ……………………. Cost of goods available for sale ……………………….. Less: Finished goods inventory, ending …………… Cost of goods sold ………………………………………….. $ 6,000 54,000 60,000 5,000 $55,000 BYDO INC Income Statement For the Year Ended December 31, 2012 Sales ………………………………………………………………. Less: Cost of goods sold ………………………………… Gross profit …………………………………………………….. Less: Operating expenses ………………………………. Operating income (loss) …………………………………… $64,000 55,000 9,000 13,000 $(4,000) Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-60 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly CASE 2-60 (a) Direct materials inventory, beginning …………. Plus: Direct materials purchased ……………….. Direct materials available for use ……………….. Less: Direct materials inventory, ending ……. Direct materials used in production $ 6,000 18,000 24,000 10,000 $14,000 (b) Finished goods inventory, beginning …………. Plus: Cost of goods manufactured …………….. Cost of goods available for sale …………………. Less: Finished goods inventory, ending ……. Cost of goods sold ……………………………………. $12,000 26,5003 38,5002 2,500 $36,0001 1 COGS = Sales of $60,000 × (100% – 40% Gross profit) = $36,000 $36,000 + $2,500 = $38,500 3 $38,500 – $12,000 = $26,500 which is cost of goods transferred out 2 Note: What we are looking for here is the “cost of goods manufactured” (which is footnote 3). In order to calculate this, we need to calculate “cost of goods available for sale” (which is footnote 2). In order to calculate this, we need to know “cost of goods sold,” which we can calculate from the information provided (footnote 1). (c) Finished goods inventory, beginning ………….. Cost of goods manufactured ……………………… Cost of goods available for sale …………………. $12,000 28,0004 $40,000 Work in process inventory, beginning ………… Plus: Direct materials used ……………………….. Plus: Conversion costs …………………………….. Total cost of work in process …………………….. Less: Work in process inventory, ending …… Cost of goods manufactured ……………………… $ 2,000 20,000 22,000 44,000 16,0006 $28,0005 4 $40,000 – $12,000 = $28,000 Cost of goods manufactured = $28,000 from point (4) 6 ($2,000 + $20,000 + $22,000) – $28,000 = $16,000 5 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-61 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly CASE 2-61 (a) Sayers Manufacturing Cost of Goods Manufactured Schedule For the Month ended January 31, 2012 Work in process, beginning ……………………………. $ 110,000 Direct materials: Direct materials inventory, beginning ……………. $ 80,000 Plus: Direct materials purchases …………………… 900,000 Total direct materials available for use ………….. 980,000 Less: Direct materials inventory, ending ……….. 90,000 Direct materials used ……………………………………… 890,000 Direct labour ………………………………………………….. 710,000 Manufacturing overhead1 ………………………………. 386,600 Total manufacturing costs ………………………….. 1,986,600 Total cost of work in process………………………….. 2,096,600 Less: Work in process, ending ………………………. 74,600 Cost of goods manufactured ………………………….. $2,022,000 1 $75,000 + $50,000 + $125,000 + $92,500 + $2,800 + $10,000 + $31,300 (b) Sayers Manufacturing Schedule of Cost of Goods Sold For the Month Ended January 31, 2012 Finished goods inventory, beginning………………… Plus: Cost of goods manufactured ……………………. Cost of goods available for sale ……………………….. Less: Finished goods inventory, ending …………… Cost of goods sold ………………………………………….. $ 95,000 2,022,000 2,117,000 108,000 $2,009,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-62 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly CASE 2-62 (a) Direct costs of production Indirect costs of production Total costs of production $220.00 180.00 $400.00 (b) Direct materials, beginning Plus: Direct material purchased Total material available for use Less: Direct materials, ending Direct materials used $ 50.00 140.00 190.00 80.00 $110.00 (c) Direct costs of production Less: Direct materials used Direct labour $220.00 110.00 $110.00 (d) Total variable costs of production1 Less: direct costs of production Variable overhead costs $280.00 220.00 $ 60.00 1 Includes DM, DL, VOH (e) Total indirect costs of production2 Less: variable overhead costs Fixed manufacturing overhead 2 $180.00 60.00 $120.00 Indirect costs are overhead costs – both variable and fixed (f) Work in process, beginning Plus: Manufacturing costs Direct material Direct labour Variable manufacturing overhead Fixed manufacturing overhead Total work in process cost Less: Work in process, ending Cost of goods manufactured $140.00 $110.00 110.00 60.00 120.00 400.00 540.00 180.00 $360.00 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-63 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly CASE 2-62 (Continued) (g) Finished goods inventory, beginning Plus: Cost of goods manufactured Cost of goods available for sale Less: Finished goods inventory, ending Cost of goods sold $240.00 360.00 600.00 250.00 $350.00 (h) Direct Labour Variable manufacturing overhead Fixed manufacturing overhead Total conversion costs $110.00 60.00 120.00 $290.00 (i) Direct materials Direct labour Total prime costs $110.00 110.00 $220.00 (j) Period costs = Selling and administrative costs $210.00 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-64 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly CASE 2-63 Raw materials inventory, beginning ………………… $ 19,000 Plus: Raw material purchased ……………………….. 345,000 Raw materials available for use ………………………. 364,000 Less: Raw materials used in production …………. 350,000 Raw materials inventory, ending …………………….. $ 14,000 Direct materials ……………………………………………… $350,000 Direct labour …………………………………………………. 240,000 Factory overhead ($240,000 × 60%) …………………. 144,000 Manufacturing costs added during the year …….. $734,000 Cost of goods available for sale ……………………. Less: finished goods inventory, beginning……. Cost of goods manufactured…………………………. $770,000 38,000 $732,000 Work in process inventory, beginning …………… Manufacturing costs …………………………………….. Total work in process during the year ……………. Less: Cost of goods manufactured ………………. Work in process inventory, ending ………………… $ 25,000 734,000 759,000 732,000 $ 27,000 Sales …………………… …………………………………. $1,260,000 Less: Gross profit ($1,260,000 × 40%) …………… 504,000 Cost of goods sold……………………………………….. $ 756,000 Cost of goods available for sale ……………………. Less: cost of goods sold ……………………………… Finished goods inventory, ending …………………. $770,000 756,000 $ 14,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-65 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly CASE 2-64 (a) The stakeholders in this situation are: • • • • The users of Robbin Industries’ financial statements. Wayne Terrago, controller. The vice-president of finance. The president of Robbin Industries. (b) The ethical issues in this situation pertain to the adherence to sound and acceptable accounting principles. Intentional violation of current standards in order to satisfy a practical short-term personal or company need thereby creating misleading financial statements would be unethical. However, selecting one acceptable method of accounting and reporting among various acceptable methods is not necessarily unethical. (c) Ethically, the management of Robbin Industries should be trying to report the financial condition and results of operations as fairly as possible; that is, in accordance with current accounting standards. Wayne should inform management what is acceptable accounting and what is not. The basic concept to be supported in this advertising cost transaction is matching costs and revenues. Normally, advertising costs are expensed in the period in which they are incurred because it is very difficult to associate them with specific revenues. Further, as advertising costs are not incurred to manufacture the product they should not be classified as product costs. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-66 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly CASE 2-65: “All About You” Activity There is no one specific correct response. Students should consider the wider implications of the situation, making assumptions as needed. (a) Labour costs can be reduced by cutting back to one shift. The shortfall of 1,000 units (11,000 – 10,000) would have to be produced using overtime labour (assuming this is practical). This could result in a higher labour cost per unit than at the 20,000 production level. Also, it is possible that material costs will increase if the company is no longer able to get volume discounts from its suppliers. (b) Fixed costs could be reduced by: •A partial closure of plant or consolidating activities to one location in plant •Subletting a portion of the plant •Closing plant completely and outsourcing production of the 11,000 units (c) Other options for the company, to increase profits are to •consider making an alternate product to make use of the production capacity that is currently being used for the lost production •diversify their customer base •reduce discretionary expenditures •negotiate improved prices from suppliers •research assistance packages from provincial or federal governments Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-67 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTION TO WATERWAYS CONTINUING PROBLEM WCP-2 (a) Waterways Corporation Schedule of Cost of Goods Manufactured Work in process, beginning $52,900 Direct materials: Raw materials inventory, beginning $38,000 Raw material purchases Total raw materials available for use 185,400 223,400 Less: Raw materials inventory, ending Raw materials used in production Less: indirect materials Direct materials Direct labour Manufacturing overhead Indirect material Indirect labour Depreciation—plant equipment Plant supplies used Plant utilities Insurance—plant 52,700 170,700 40,000 $130,700 28,000 $40,000 42,000 17,920 16,800 10,200 5,000 Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-68 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly Property tax—plant 4,280 Security services 10,000 Janitorial services 5,100 Maintenance—plant equipment 4,700 156,000 Total manufacturing costs Total cost of work in process 314,700 367,600 Less: Work in process, ending Cost of goods manufactured 42,000 $325,600 (b) Direct labour (X): ($176,000 – $148,000) ÷ ($32,000 – $24,000) = 350% Total cost Less: Variable costs 32,000 × 350% 24,000 × 350% Total fixed costs Activity Level High Low $176,000 $148,000 112,000 000,00 0 $ 64,000 84,000 $ 64,000 The cost formula is: $64,000 + 3.50X. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-69 Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly Hours of Operation: ($170,000 – $145,000) ÷ (700 – 500) = $125 per hour Total cost Less: Variable costs 700 × $125 500 × $125 Total fixed costs Activity Level High Low $170,000 $145,000 87,500 000,00 0 $ 82,500 62,500 $ 82,500 The cost formula is: $82,500 + $125X. If we substitute the actual values of the activity bases from the current month we would get the following estimates: Labour dollars: $64,000 + (3.5 × $28,000) = $162,000 Hours of operation: $82,500 + ($125 × 580) = $155,000 As the actual manufacturing overhead was $156,000 for the month, hours of operation would be the better choice as an activity base for predicting manufacturing overhead. Solutions Manual © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 2-70