AC LO 1-1, 1-2, 1-3, 1-4 Homework

Weib Manufacturing experienced the following events during its first accounting period: 1. Recognized revenue from cash sale of products. 2. Recognized cost of goods sold from sale referenced in Event 1. 3. Acquired cash by issuing common stock. 4. Paid cash to purchase raw materials that were used to make products. 5. Paid wages to production workers. 6. Paid salaries to administrative staff. 7. Recognized depreciation on manufacturing equipment. 8. Recognized depreciation on office furniture.

1. Cash (I) Ret Earn (I) Rev (I) Net Inc (I) 2. Inv (D) Ret Earn (D) Exp (I) Net Inc (D) 3. Cash (I) Com Stk (I) 4. Cash (D) Inv (I) 5. Cash (D) Inv (I) 6. Cash (D) Ret Earn (D) Exp (I) Net Inc (D) 7. Inv (I) Manuf Equip (D) 8. Office Furn (D) Ret Earn (D) Exp (I) Net Inc (D)

During year 1, Rooney Manufacturing Company incurred $8,000,000 of research and development (R&D) costs to create a long-life battery to use in computers. In accordance with FASB standards, the entire R&D cost was recognized as an expense in year 1. Manufacturing costs (direct materials, direct labor, and overhead) are expected to be $45 per unit. Packaging, shipping, and sales commissions are expected to be $8 per unit. Rooney expects to sell 2,000,000 batteries before new research renders the battery design technologically obsolete. During year 1, Rooney made 440,000 batteries and sold 400,000 of them. Required a. Identify the upstream and downstream costs.

1. Research and Development = Upstream 2. Packaging = Downstream 3. Shipping = Downstream 4. Sales commissions = Downstream

Required Indicate whether each of the following items is representative of managerial or of financial accounting: a. Information is factual and is characterized by objectivity, reliability, consistency, and accuracy. b. Information is reported continuously and has a current or future orientation. c. Information is provided to outsiders, including investors, creditors, government agencies, analysts, and reporters. d. Information is regulated by the SEC, FASB, and other sources of GAAP. e. Information is based on estimates that are bounded by relevance and timeliness. f. Information is historically based and usually reported annually. g. Information is local and pertains to subunits of the organization. h. Information includes economic and nonfinancial data as well as financial data. i. Information is global and pertains to the company as a whole. j. Information is provided to insiders, including executives, managers, and employees.

A. Financial Accounting B. Managerial Accounting C. Financial Accounting D. Financial Accounting E. Managerial Accounting F. Financial Accounting G. Managerial Accounting H. Managerial Accounting I. Financial Accounting J. Managerial Accounting

The cost of manufacturing a product includes all (materials, labor, overhead) except

Advertising

The primary difference between cost classification for a manufacturing firm versus a merchandising firm is

All costs for a manufacturing firm are midstream costs for a merchandising firm.

ManCo Manufacturing Company paid cash for wages of production workers. Which of the following choices reflects how this event would affect the Company's balance sheet and income statement?

Assets (+ -) = Liability (na) + Equity (na) Revenue (na)− Expense (na) = Net Income (na)

ManCo Manufacturing Company paid cash for commissions paid to sales staff. Which of the following choices reflects how this event would affect the Company's balance sheet and income statement?

Assets (-) = Liability (na) + Equity (-) Revenue (na)− Expense (+) = Net Income (-)

Mary's Manufacturing Company used supplies in its accounting department. Which of the following choices reflects how this event would affect the Company's balance sheet and income statement?

Assets (-) = Liability (na) + Equity (-) Revenue (na)− Expense (+) = Net Income (-)

b. Determine the year 1 amount of cost of goods sold and the ending inventory balance that would appear on the financial statements that are prepared in accordance with GAAP.

Cost of goods sold: $45 × 400,000 = $18,000,000 Ending inventory: $45 × 40,000 = $1,800,000

Which of the following branches of accounting focuses more on historical data?

Financial accounting

The wages of factory maintenance personnel would usually be considered as: Indirect Labor, Manufacturing Overhead a)No, Yes b)Yes, No c)Yes, Yes d)No, No

Indirect Labor, Manufacturing Overhead C) Yes, Yes

Which of the following costs would not be included as part of manufacturing overhead?

Insurance on sales vehicles

Product costs are placed in which financial statement account when incurred?

Inventory

The primary difference between midstream costs incurred at a manufacturing firm versus a service firm is

Inventory at a service company is consumed immediately as opposed to being stored for future use at a manufacturing firm.

Which of the following statements is true?

Managerial accounting reports are less regulated than financial accounting reports.

Which of the following describes the flow of product costs in a manufacturing company?

Product costs are first accumulated in an asset account (Inventory) and then transferred to an expense account (Cost of Goods Sold) when the products are sold.

Which of the following are characteristics of managerial accounting information?

Provides information to the company's management team. Is future oriented. Is more willing to sacrifice reliability to gain relevance than is financial accounting. All of the answers describe characteristics of managerial accounting information.

d. Prepare a GAAP-based income statement for year 1. Use the sales price developed in Requirement c.

ROONEY MANUFACTURING COMPANYIncome Statement Sales revenue $28,500,000 Cost of goods sold (18,000,000) Gross margin 10,500,000 Research and development (8,000,000) Selling expenses (3,200,000) Net loss $(700,000) Sales revenue: $71.25 × 400,000 = $28,500,000 Selling expenses: $8 × 400,000 = $3,200,000

c. Determine the sales price assuming that Rooney desires to earn a profit margin that is equal to 25 percent of the total cost of developing, making, and distributing the batteries.

Upstream cost per unit, $8,000,000 ÷ 2,000,000 = $4.00 Manufacturing cost per unit 45.00 Downstream costs per unit 8.00 Total cost 57.00 Plus: 25% profit margin, $57.00 × 25% 14.25 Price$71.25

Use the following information to calculate the sales price of a boat under both GAAP and for internal decision purposes: Number of boats to be sold 500 Upstream costs $5,000,000 Direct materials per boat $50,000 Direct labor per boat $30,000 Overhead per boat $20,000 Downstream costs $2,000,000 Assume the company wants to sell each boat for 20% more than the cost to produce the boat. Which of the following would be the sales price under GAAP and for internal decision purposes? (Do not round intermediate calculations.) GAAPInternal Decision a)$120,000 $136,800 b)$136,800 $136,800 c)$120,000 $114,000 d)$136,800 $114,000

a)$120,000 $136,800 Sales price under GAAP = ($50,000 + $30,000 + $20,000) × 1.20 = $120,000Sales price for internal decision = ([$5,000,000/500] + $50,000 + $30,000 + $20,000 + [$2,000,000 / 500]) × 1.20 = $136,800

Mustafa Manufacturing Company began operations on January 1. During the year, it started and completed 3,000 units of product. The financial statements are prepared in accordance with GAAP. The company incurred the following costs: 1. Raw materials purchased and used—$6,200. 2. Wages of production workers—$7,400. 3. Salaries of administrative and sales personnel—$3,000. 4. Depreciation on manufacturing equipment—$4,400. 5. Depreciation on administrative equipment—$2,200. Mustafa sold 2,400 units of product. Required a. Determine the total product cost for the year. b. Determine the total cost of the ending inventory. c. Determine the total of cost of goods sold.

a. Total Product cost for the year = $6,200 + $7,400 + 4,400 = $18,000 b. Cost of inventory per unit = $18,000 ÷ 3,000 = $6.00 Ending inventory in units = 3,000 − 2,400 = 600 Cost of ending inventory = $6.00 × 600 = $3,600 c. Cost of goods sold = $6.00 × 2,400 = $14,400

The cost of a small amount of glue used to manufacture a product may be called

an overhead cost a produce cost an indirect cost All of the choices are terms that may be used to describe small quantities of materials consumed in the process of making products.

The cost of denim used to manufacture blue jeans would most likely be classified as a

direct material

The costs incurred to sell a product would be classified as

downstream costs

Managerial accounting focuses on the needs of external users while financial accounting focuses on the needs of internal users. This statement is

false

The Financial Accounting Standards Board (FASB) establishes standards for the preparation of financial accounting reports while the Securities and Exchange Commission (SEC) establishes standards for the preparation of managerial accounting reports. This statement is

false

According to GAAP, which type of costs are classified as product cost?

midstream costs

In a manufacturing firm, costs incurred to research a more fuel efficient engine would be classified as

upstream costs

Brock Company makes candy. During the most recent accounting period Brock paid $3,000 for raw materials, $4,000 for labor, and $2,000 for overhead costs that were incurred to make candy. Brock started and completed 10,000 units of candy of which 8,000 were sold. Based on this information the balance in the inventory account on Brock's balance sheet would be (Do not round intermediate calculations.)

$1,800 Add all Brock paid for materials and costs = $9,000 Divide by unites of candy = $9,000 / 10,000 = 0.90 cost per unit 0.90 × 2,000 units in inventory = $1,800 inventory

Calgary Manufacturing company makes chairs and desks. The following costs were incurred in making its products during its first year of operation. Chairs Desks Total Direct Materials $4,000 $6,000 $10,000 Direct Labor 12,000 8,000 20,000 Also the company incurred $14,000 of employee benefits cost. Since these overhead costs are driven by the use of labor they are allocated to the products based on the direct labor dollars. Based on this information alone the total cost of making chairs is. (Do not round intermediate calculations.)

$24,400 Cost to be allocated / Allocation base = Allocation Rate $14,000 / $20,000 = $0.70 per labor dollar Overhead cost allocated to chairs $12,000 × 0.70 =$8,400 Overhead cost allocated to desks $8,000 × 0.70 = 5,600 Total overhead cost allocated $14,000

Use the following information to determine net income in the financial statements under GAAP: Number of boats to be sold 500 Upstream costs $5,000,000 Direct materials per boat $50,000 Direct labor per boat $30,000 Overhead per boat $20,000 Downstream costs $2,000,000 Assume the company wants to sell each boat for 20% more than the cost to produce the boat.

$3,000,000 Income Statement Sales revenue ($120,000 × 500) $60,000,000 - Cost of goods sold ($100,000 × 500) 50,000,000 = Gross margin 10,000,000 General, selling and administrative (G,S&A): Upstream cost$5,000,000 + Downstream cost 2,000,000 = Total general, selling and administrative (G,S&A): $7,000,000 Gross margin - Total general, selling, and admin = Net income $3,000,000

Celestin Manufacturing Company incurred $5,000 of depreciation on its manufacturing equipment during its first year of operation. During this year the company made 2,500 units of product and sold 2,000 units of product. Based on this information alone the company would show

$4,000 of cost of goods sold expense on its income statement. Since the company made 2,500 units of product and sold 2,000 of them, the amount of cost transferred to the Cost of Goods Sold account is $4,000 (5,000 depreciation / 2,500 units = $2 per unit; $2 per unit × 2,000 units sold = $4,000 cost of goods sold. The remaining $1,000 of depreciation would remain in the inventory account until the time the remaining goods are sold.

Brock Company makes candy. During the most recent accounting period Brock paid $3,000 for raw materials, $4,000 for labor, and $2,000 for overhead costs that were incurred to make candy. Brock started and completed 10,000 units of candy of which 8,000 were sold. Based on this information Brock would recognize which of the following amounts of expense on its income statement? (Do not round intermediate calculations.)

$7,200 Add all Brock paid for materials and costs = $9,000 Divide by unites of candy = $9,000 / 10,000 = 0.90 cost per unit 0.90 × 8,000 units sold = $7,200 cost of goods sold expense