Managerial Accounting Chapter 2 HW

Work in process inventory

is composed of goods partially through the manufacturing process​ (not finished​ yet).

Manufacturing Companies

report three types of inventory on the balance sheet.

Which of the following is false​? A. Sunk costs are generally relevant to decisions. B. Uncontrollable costs are costs over which the company has little or no control in the short run. C. Sunk costs are costs that have already been incurred. D. The difference in cost between two alternatives is known as a differential cost.

sunk costs are generally relevant to decisions

Wholesalers

buy products in bulk from​ producers, marks them​ up, and resell to retailers

total product costs formula

direct labor + direct materials +manufacturing overhead

Total Conversion Costs Formula

direct labor + manufacturing overhead

total prime costs formula

direct labor+direct material

Classify each of The J.M. Smucker Company's costs as one of the six business functions in the value chain. a. Cost of a prime-time TV ad featuring Smucker's® Fruit & Honey™ Fruit Spreads b. Salary of engineers who are designing the new plant's layout c. Depreciation on Orrville, Ohio plant d. Depreciation on delivery vehicles e.Transportation costs to deliver Folgers Coffee® to retailers such as Kroger, Walmart, and Save-A-Lot f. Costs of a customer support center website g. plant manager's salary h. Purchase of strawberries used in Smucker's® Strawberry Preserves i. depreciation on food research lab

a. Marketing b. design c. production d. distribution e. distribution f. customer service g. production h. production i. Research and development

A cost that can be traced to a cost object is known as​ a(n) A. product cost. B. period cost. C. direct cost. D. indirect cost.

direct cost

You are a new accounting intern at Bikes Galore. Your boss gives you the following information and asks you to compute the cost of direct materials used​ (assume that the​ company's raw materials inventory contains only direct​ materials). ___________________________________________ Import duties . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,200 Beginning raw materials inventory . . . . . . . . . . $4,500 Ending raw materials inventory . . . . . . . . . . . . . $1,700 Freight-in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $900 Freight-out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $800 Purchases of direct materials . . . . . . . . . . . . . . $15,600 _____________________________________________

Bikes Galore Calculation of Direct Materials Used _________________________________________________ Direct materials used: Beginning raw materials inventory $4,500 Plus: Purchases of direct materials $15,600 Freight-in 900 Import duties 1,200 17,700 ___________ Materials available for use 22,200 Less: Ending raw materials inventory 1,700 Direct materials used $20,500 =========

Given the following information for a​ retailer, compute the cost of goods sold. Ending inventory . . . . . . . . . . . . . . . . . $5,800 Website maintenance . . . . . . . . . . . . . $7,500 Revenues . . . . . . . . . . . . . . . . . . . . . . . $67,000 Freight-in . . . . . . . . . . . . . . . . . . . . . . . $3,000 Import duties . . . . . . . . . . . . . . . . . . . . $800 Marketing expenses . . . . . . . . . . . . . . $9,600 Delivery expenses . . . . . . . . . . . . . . . . $1,400 Purchases . . . . . . . . . . . . . . . . . . . . . . $43,000 Beginning inventory . . . . . . . . . . . . . . . $4,000

Calculation of Cost of Goods Sold _________________________________________________ Cost of goods sold: Beginning inventory $4,000 Plus: Purchases $43,000 Import duties 800 Freight-in 3,000 ________ 46,800 _____________ Cost of goods available for sale 50,800 Less: Ending inventory 5,800 Cost of goods sold $45,000

Which of the following is true​? A. Direct materials are considered to be fixed costs. B. Manufacturing overhead is composed of only variable costs. C. Fixed costs stay constant in total over a wide range of activity levels. D. The average cost per unit can be used for predicting total costs at many different output levels.

Fixed costs stay constant in total over a wide range of activity levels

examples of service companies

Insurance company, health care provider, a bank, etc. (A law​ office, an advertising​ agency, and a hospital are all examples of service companies)

Period Costs

are the costs incurred by the company that do not get treated as inventory, but rather, are expensed immediately in the period in which they are incurred. any cost that is not treated as inventory, is treated as a period cost. do not relate to manufacturing or purchasing product. include costs in every other function of the value chain: research&distribution, design, marketing, distribution, customer service

raw materials inventory is converted into

finished products (Johnson​ & Johnson, a personal care products​ manufacturer, converts raw materials inventory into finished products.)

Which of the following is not an activity in the value​ chain? A. Marketing B. Design C. Customer Service D. Administration

ADMINISTRATION

service companies

typically do not have an inventory account

merchandising companies

Forever​ 21, Target, and​ Kohl's are all examples of

Which of the following is a calculated​ amount, rather than a general ledger​ account? A. Cost of goods manufactured B. Cost of goods sold C. Sales revenue D. Finished goods inventory

Cost of goods manufactured

Conversion costs consist of A. direct labor and manufacturing overhead. B. direct​ materials, direct​ labor, and manufacturing overhead. C. direct materials and manufacturing overhead. D. direct materials and direct labor.

Direct Labor and Manufacturing Overhead

Which of the following types of companies would have work in process​ inventory? A. Merchandising B.Service C. Manufacturing D. All of the above

MANUFACTURING

Which of the following is not part of manufacturing​ overhead? A. Period​ costs, such as depreciation on office computers B. Indirect​ materials, such as machine lubricants C. Indirect​ labor, such as plant forklift​ operators' wages D. Other indirect manufacturing​ costs, such as plant utilities

Period costs, such as depreciation on office computers

Inventory (merchandise)

for a company such as Best Buy​ (consumer electronics) includes all of the costs necessary to purchase products and get them onto the store shelves.

The current asset sections of the balance sheets of three companies follow. Which company is a service​ company? Which is a​ merchandiser? Which is a​ manufacturer? How can you​ tell? 1. Madison Company is a ___ because it has _____ 2. Dean Company is a ___ because it has ____ 3. Anderson Company is a ____ because it has ____

1. Manufacturer, three kinds of inventory 2. Merchandiser, a single inventory account 3. service company, no inventory

merchandising companies, manufacturing companies, service companies

Most​ for-profit organizations can be described as being in one​ (or more) of three​ categories:

Period costs are often referred to as A. manufacturing expenses. B. operating expenses. C. product costs. D. direct costs.

Operating expenses

Clever Cuts is a retail chain specializing in​ salon-quality hair-care products. During the​ year, Clever Cuts had sales of $ 39 comma 225 comma 000. The company began the year with $ 3 comma 100 comma 000 of merchandise inventory and ended the year with $ 4 comma 115 comma 000 of inventory. During the​ year, Clever Cuts purchased $ 24 comma 215 comma 000 of merchandise inventory. The​ company's selling,​ general, and administrative expenses totaled $ 6 comma 850 comma 000 for the year. Prepare Clever Cuts' income statement for the year. 1. Begin by calculating Clever Cuts' cost of goods sold using the table below. 2. Now prepare Clever Cuts' income statement for the year

1. Clever Cuts Calculation of Cost of Goods Sold For the Year Ended ___________________________________ Beginning inventory $3,100,000 Plus: Purchases 24,215,000 Cost of goods available for sale $27,315,000 (beg. inv. + purch) Less: Ending inventory 4,115,000 Cost of goods sold $23,200,000 _____________________________________ 2. Clever Cuts Income Statement For the Year Ended ___________________________________ Sales revenues $39,225,000 Less: Cost of goods sold 23,200,000 Gross profit $16,025,000 Less: Operating expenses 6,850,000 Operating income $9,175,000

Requirement 1. Is the cost of sugar in PEZ candies a product or a period​ cost? How about the wrappers that the candy is packaged​ in? The cost of sugar in PEZ candies is a ________ The wrappers that the candy is packaged in is a ____________ Requirement 2. Is the cost of quality control testing in the manufacturing process for PEZ candies a product or a period​ cost? The cost of quality control testing in the manufacturing process for PEZ candies is a __________ Requirement 3. Is the cost of the labor to make PEZ candy in the factory a product or a period​ cost? What about the cost of the benefits​ (i.e., health​ care, payroll​ taxes, vacation​ pay) for those​ workers? The cost of the labor to make PEZ candy in the factory is a __________ The cost of the benefits​ (i.e., health​ care, payroll​ taxes, vacation​ pay) for those workers is a _________ Requirement 4. Is the cost of staffing the PEZ Visitor Center a product or a period​ cost? What about the cost of the benefits​ (i.e., health​ care, payroll​ taxes, vacation​ pay) for those workers who work in the Visitors​ Center? The cost of staffing the PEZ Visitor Center is a ________ The cost of the benefits​ (i.e., health​ care, payroll​ taxes, vacation​ pay) for the workers who work in the Visitors Center is a ________ Requirement 5. Assume that PEZ purchased the​ touch-screen PEZ trivia game from a custom video game developer. Is the cost of that game a product or a period​ cost? What about the costs of maintaining and updating the software and hardware for the​ game? The cost of the​ touch-screen PEZ trivia game is a ______________ The costs of maintaining and updating the software and hardware for the game is a _______________ Requirement 6. Is food cost for a birthday party in the PEZ Visitor Center a product or a period​ cost? What about the cost of the items included in the goodie​ bags? The food cost for a birthday party in the PEZ Visitor Center is a _________________ The cost of the items included in the goodie bags is a _________________

1. product cost, product cost 2. product cost 3. product cost, product cost 4. period cost, period cost 5. period cost, period cost 6. period cost, period cost

Ernst Manufacturing found the following information in its accounting​ records: $ 529 200 of direct materials​ used, $ 228000 of direct​ labor, and $ 748000 of manufacturing overhead. The Work in Process Inventory account had a beginning balance of $ 79500 and an ending balance of $ 86500. Compute the​ company's Cost of Goods Manufactured. Complete the following table to determine the cost of goods manufactured.

Ernst Manufacturing Calculation of Cost of Goods Manufactured For Current Year _______________________________________________ Beginning work in process inventory $79,500 Plus: Manufacturing costs incurred Direct materials used $529,200 Direct labor 228,000 ____________ Manufacturing overhead 748,000 Total manufacturing costs to account for 1,584,700 Less: Ending work in process inventory 86,500 ____________ Cost of goods manufactured $1,498,200 ==========

Frame Giant manufactures picture frames. Suppose the​ company's June records include the following items. Oil for manufacturing equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25 Wood for frames . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $51,000 Company president's salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,500 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,600 Plant supervisor's salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,500 Depreciation expense on company cars used by sales force . . . . . . $2,300 Plant janitor's salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,100 Plant depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,000 Glue for picture frames . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250 What is Frame Giant​'s total manufacturing overhead cost in June​?

Manufacturing overhead: Oil for manufacturing equipment $25 Glue for picture frames 250 Plant janitor's salary 1,100 Plant supervisor's salary 3,500 Plant depreciation expense 7,000 Total manufacturing overhead $11,875

Classify each of Ford Motor​ Company's costs as either product costs or period costs. Ford Motor Company is an automobile manufacturer headquartered in​ Detroit, Michigan. a. Cost of chemical included in paint to inhibit rust b. Life insurance for the CEO c. Cost of electricity at the Lima Engine Plant in Ohio e. Cost of ad campaign and slogan called "By Design" to high-light the designs of Ford's cars f. Purchase of aluminum to be used in car wheels g. Salaries of Ford engineers researching ways to reduce CO2 emissions h. Cost of new software to schedule production i. Salaries of Ford Motor Company's top executives

a. product cost b. period cost c. product cost d. product cost e. period cost (marketing) f. product cost g. period cost (r&d) h. product cost i. period cost

Classify each of the following costs as fixed or​ variable: a. Cost of French fries used at a McDonald's restaurant b. Hourly wages paid to cashiers at The Home Depot c. Monthly sugar costs for The Hershey Company d. Cost of fuel used by Old Dominion Freight Line, a national trucking company e. Shipping costs at Amazon.com f. Monthly rent for Onyx Nail Bar, a nail salon in Dallas, Texas g. Sales commissions at Tampa Honda in Florida h. Monthly insurance costs for the building housing the administrative offices of Panera Bread in St. Louis, Missouri i. Monthly depreciation of equipment used in the customer service department at Klaben Ford Lincoln, a car dealership in Kent, Ohio j. Cost of rubber used to manufacturer L.L. Bean boots k. Cost of oranges sold at a Kroger's grocery store l. Monthly office lease costs for the Portland office of E&Y, a global audit firm m. Monthly cost of coffee at a Dunkin' Donuts store n. Property taxes for an Applebees' Neighborhood Grill & Bar o. Depreciation of exercise equipment at an LA Fitness club

a. variable b. variable c. variable d. variable e. variable f. fixed g. variable h. fixed i. fixed j. variable k. variable l. fixed m. variable n. fixed o. fixed

Product Costs

are the costs incurred by manufacturers to produce their products or incurred by merchandisers to purchase their products. costs relate to obtaining inventory, through manufacturing or purchasing products.

Which of the following types of companies will always have the Cost of Goods Sold account on their income​ statements? A. Service and manufacturing companies B. Service and merchandising companies C. Merchandising and manufacturing companies D. ​Service, merchandising, and manufacturing companies

merchandising and manufacturing companies