Introduction to Managerial Accounting

Give five examples of manufacturing overhead.

Computing manufacturing overhead 

Sunglasses Unlimited Company manufactures sunglasses. Following is a list of costs the company incurred during May. Use the list to calculate the total manufacturing overhead costs for the month.

 Glue for frames $ 250 

Depreciation on company cars used by sales force 4,000 

Plant depreciation 7,500 

Interest Expense 1,500 

Lenses 52,000 

Company president’s salary 24,500 

Plant foreman’s salary 3,500 

Plant janitor’s wages 1,300 

Oil for manufacturing equipment 150

Distinguishing between direct and indirect costs Granger Cards is a manufacturer of greeting cards. Classify its costs by matching the costs to the terms.

1. Direct materials 
2.  Direct labor 
3. Indirect materials 
4. Indirect labor 
5. Other manufacturing overhead

 a. Artists’ wages 

b. Wages of materials warehouse workers 

c. Paper 

d. Depreciation on manufacturing equipment 

e. Manufacturing plant manager’s salary 

f. Property taxes on manufacturing plant 

g. Glue for envelopes

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost: 

a. Salaries of scientists studying ways to speed forest growth.

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost: 

c. Cost of electricity at the paper mill

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost: 

d. Salaries of the company’s top executives.

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost: 

e. Cost of chemicals to treat the paper.

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost: 

f. Cost of TV ads.

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost: 

g. Depreciation on the manufacturing plant.

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost: 

h. Cost to purchase wood pulp.

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:

i. Life insurance on the CEO.

Computing cost of goods sold, merchandising company 

Use the following information for The Windshield Helper, a retail merchandiser of auto windshields, to compute the cost of goods sold: 

Web Site Maintenance $ 7,900 

Delivery Expense 400 

Freight In 2,400 

Purchases 47,000 

Ending Merchandise Inventory 5,500 

Revenues 63,000 

Marketing Expenses 10,700 

Beginning Merchandise Inventory 8,600

Computing cost of goods sold and operating income, merchandising company 

Consider the following partially completed income statements for merchandising companies and compute the missing amounts:

Smith, Inc. Allen, Inc. 

Net Sales Revenue \( 101,000 \) (d ) 

Cost of Goods Sold: 

Beginning Merchandise Inventory (a) 29,000 

Purchases and Freight In 50,000 (e) 

Cost of Goods Available for Sale (b) 89,000 

Ending Merchandise Inventory (2,200) (2,200) 

Cost of Goods Sold 61,000 (f) 

Gross Profit 40,000 114,000 

Selling and Administrative Expenses (c ) 84,000 

Operating Income \( 12,000 \) (g)

Computing direct materials used 

Tuscany, Inc. has compiled the following data: 

Purchases of Direct Materials $ 6,300 

Freight In 400 

Property Taxes 800 

Ending Direct Materials 1,300 

Beginning Direct Materials 4,100 

Compute the amount of direct materials used.

Matching business trends terminology

Match the term with the correct definition.

1. A philosophy designed to integrate all organizational areas in order to provide customers with superior products and services while meeting organizational objectives. Requires improving quality and eliminating defects and waste. 

2. Use of the Internet for business functions such as sales and customer service. Enables companies to reach customers around the world.

3. Evaluating a company’s performance by its economic, social, and environmental impact.

4. Software system that integrates all of a company’s functions, departments, and data into a single system.

5. A system in which a company produces products just when they are needed to satisfy needs. Suppliers deliver materials when they are needed to begin production, and finished units are completed at the right time for delivery to customers.

a. ERP b. JIT c. E-commerce d. TQM e. Triple bottom line

Calculating unit cost per service 

Marx and Tyler provides hair-cutting services in the local community. In February, the business cut the hair of 190 clients, earned \(4,800 in revenues, and incurred the following operating costs:

Hair Supplies Expense \) 950

Wages Expense 548 

Utilities Expense 190

Depreciation Expense—Equipment 60 

What was the cost of service to provide one haircut?

Computing cost of goods manufactured 

Use the following inventory data for Caddy Golf Company to compute the cost of goods manufactured for the year: 

Direct Materials Used $ 12,000 

Manufacturing Overhead 21,000 

Work-in-Process Inventory: 

Beginning Balance 1,000 

Ending Balance 5,000 

Direct Labor 9,000 

Finished Goods Inventory: 

Beginning Balance 18,000 

Ending Balance 4,000

Computing cost of goods sold, manufacturing company 

Use the following information to calculate the cost of goods sold for The Ellis Company for the month of June: 

Finished Goods Inventory:

 Beginning Balance $ 30,000

Ending Balance 10,000 

Cost of Goods Manufactured 165,000

Match the term with the correct definition. 

1. A philosophy designed to integrate all organizational areas in order to provide customers with superior products and services while meeting organizational objectives. Requires improving quality and eliminating defects and waste. 

2. Use of the Internet for business functions such as sales and customer service. Enables companies to reach customers around the world. 

3. Evaluating a company’s performance by its economic, social, and environmental impact. 

4. Software system that integrates all of a company’s functions, departments, and data into a single system. 

5. A system in which a company produces products just when they are needed to satisfy needs. Suppliers deliver materials when they are needed to begin production, and finished units are completed at the right time for delivery to customers. 

a. ERP b. JIT c. E-commerce d. TQM e. Triple bottom line

Calculating unit cost per service 

Marx and Tyler provides hair-cutting services in the local community. In February, the business cut the hair of 190 clients, earned \(4,800 in revenues, and incurred the following operating costs: 

Hair Supplies Expense \) 950 

Wages Expense 548 

Utilities Expense 190 

Depreciation Expense—Equipment 60 

What was the cost of service to provide one haircut?

Comparing managerial accounting and financial accounting 

Match the following terms to the appropriate statement. Some terms may be used more than once, and some terms may not be used at all. 

Directing                  Managerial 

Creditors                  Managers 

Controlling               Planning 

Financial                  Stockholders 

a. Accounting systems that must follow GAAP. 

b. External parties for whom financial accounting reports are prepared. 

c. The role managers play when they are monitoring day-to-day operations and keeping the company on track. 

d. Internal decision makers. 

e. Accounting system that provides information on a company’s past performance. 

f. Accounting system not restricted by GAAP.

 g. The management function that involves choosing goals and deciding how to achieve them

Making ethical decisions 

Sue Peters is the controller at Vroom, a car dealership. Dale Miller recently has been hired as the bookkeeper. Dale wanted to attend a class in Excel spreadsheets, so Sue temporarily took over Dale’s duties, including overseeing a fund used for gas purchases before test drives. Sue found a shortage in the fund and confronted Dale when he returned to work. Dale admitted that he occasionally uses the fund to pay for his own gas. Sue estimated the shortage at $450. 

Requirements 1. What should Sue Peters do?

Making ethical decisions 

Sue Peters is the controller at Vroom, a car dealership. Dale Miller recently has been hired as the bookkeeper. Dale wanted to attend a class in Excel spreadsheets, so Sue temporarily took over Dale’s duties, including overseeing a fund used for gas purchases before test drives. Sue found a shortage in the fund and confronted Dale when he returned to work. Dale admitted that he occasionally uses the fund to pay for his own gas. Sue estimated the shortage at $450. 

Requirements 2. Would you change your answer if Sue Peters was the one recently hired as controller and Dale Miller was a well-liked, long time employee who indicated he always eventually repaid the fund?

Classifying costs Wheels, Inc. manufactures wheels for bicycles, tricycles, and scooters. For each cost given below, determine if the cost is a product cost or a period cost. If the cost is a product cost, further determine if the cost is direct materials (DM), direct labor (DL), or manufacturing overhead (MOH) and then determine if the product cost is a prime cost, conversion cost, or both. If the cost is a period cost, further determine if the cost is a selling expense or administrative expense (Admin). Cost (a) is answered as a guide

Cost                                                          Product                                                                Period

                                                   DM      DL    MOH     Prime      Conversion           Selling    Admin. 

a. Metal used for rims 

b. Sales salaries 

c. Rent on factory 

d. Wages of assembly workers 

e. Salary of production supervisor 

f. Depreciation on office equipment 

g. Salary of CEO 

h. Delivery expense

Selected data for three companies are given below. All inventory amounts are ending balances and all amounts are in millions.

Company A                                          Company B                                                Company C 

Cash \( 6                                              Wages Expense \) 12                            Administrative Expenses $ 4 

Net Sales Revenue 48                        Equipment 32                                      Cash 25 

Finished Goods Inventory 10          Accounts Receivable 8                        Net Sales Revenue 75 

Cost of Goods Sold 23                      Service Revenue 65                               Selling Expenses 8

 Selling Expenses 4                            Cash 34                                                  Merchandise Inventory 12 

 Equipment 67                                   Rent Expense 12                                  Equipment 55 

Work-in-Process Inventory 9                                                                         Accounts Receivable 19 

Accounts Receivable 14                                                                                  Cost of Goods Sold 25

Cost of Goods Manufactured 23 

Administrative Expenses 7 

Raw Materials Inventory 6

Identifying differences between service, merchandising, and manufacturing companies 

Using the above data, determine the company type. Identify each company as a service company, merchandising company, or manufacturing company

Selected data for three companies are given below. All inventory amounts are ending balances and all amounts are in millions.

Company A                                          Company B                                                Company C 

Cash \( 6                                               Wages Expense \) 12                            Administrative Expenses $ 4 

Net Sales Revenue 48                        Equipment 32                                      Cash 25 

Finished Goods Inventory 10          Accounts Receivable 8                        Net Sales Revenue 75 

Cost of Goods Sold 23                      Service Revenue 65                               Selling Expenses 8

 Selling Expenses 4                            Cash 34                                                  Merchandise Inventory 12 

 Equipment 67                                   Rent Expense 12                                   Equipment 55 

Work-in-Process Inventory 9                                                                          Accounts Receivable 19 

Accounts Receivable 14                                                                                   Cost of Goods Sold 25

Cost of Goods Manufactured 23 

Administrative Expenses 7 

Raw Materials Inventory 6

Identifying differences between service, merchandising, and manufacturing companies Using the data on the previous page, calculate operating income for each company.

Selected data for three companies are given below. All inventory amounts are ending balances and all amounts are in millions.

Company A                                          Company B                                                Company C 

Cash \( 6                                               Wages Expense \) 12                            Administrative Expenses $ 4 

Net Sales Revenue 48                        Equipment 32                                      Cash 25 

Finished Goods Inventory 10          Accounts Receivable 8                        Net Sales Revenue 75 

Cost of Goods Sold 23                      Service Revenue 65                               Selling Expenses 8

 Selling Expenses 4                            Cash 34                                                  Merchandise Inventory 12 

 Equipment 67                                   Rent Expense 12                                   Equipment 55 

Work-in-Process Inventory 9                                                                          Accounts Receivable 19 

Accounts Receivable 14                                                                                   Cost of Goods Sold 25

Cost of Goods Manufactured 23 

Administrative Expenses 7 

Raw Materials Inventory 6

Using the data on the previous page, calculate total current assets for each company

Computing cost of goods manufactured 

Consider the following partially completed schedules of cost of goods manufactured. Compute the missing amounts.

                                                                                             Banner, Inc.     Larry’s Bakery       Sports Gear 

Beginning Work-in-Process Inventory                              \( (a)                 \) 40,800              \( 2,200 

Direct Materials Used                                                          14,400               35,900                  (g) 

Direct Labor                                                                          10,300                20,100               1,900 

Manufacturing Overhead                                                     (b)                    10,000                 900 

Total Manufacturing Costs Incurred during the Year   45,200                  (d)                      (h) 

Total Manufacturing Costs to Account for                     55,400                   (e)                     8,300 

Ending Work-in-Process Inventory                                     (c)                  (25,500)                (2,600) 

Cost of Goods Manufactured                                      \) 50,500                  \( (f)                      \) (i)

Preparing a schedule of cost of goods manufactured Wilson Corp., a lamp manufacturer, provided the following information for the year ended December 31, 2018:

Balances: Beginning Ending

 Direct Materials \( 59,000 \) 23,000 

Work-in-Process Inventory 109,000 62,000 

Finished Goods Inventory 41,000 44,000 

Other information: 

Depreciation, plant building and equipment $ 16,000 

Direct materials purchases 151,000 

Insurance on plant 24,000 

Sales salaries 47,000 

Repairs and maintenance—plant 10,000 

Indirect labor 39,000 

Direct labor 121,000 

Administrative expenses 60,000 

Requirements 1. Use the information to prepare a schedule of the cost of goods manufactured.

Preparing a schedule of cost of goods manufactured Wilson Corp., a lamp manufacturer, provided the following information for the year ended December 31, 2018:

Balances: Beginning Ending

 Direct Materials \( 59,000 \) 23,000 

Work-in-Process Inventory 109,000 62,000 

Finished Goods Inventory 41,000 44,000 

Other information: 

Depreciation, plant building and equipment $ 16,000 

Direct materials purchases 151,000 

Insurance on plant 24,000 

Sales salaries 47,000 

Repairs and maintenance—plant 10,000 

Indirect labor 39,000 

Direct labor 121,000 

Administrative expenses 60,000 

Requirements 2. What is the unit product cost if Wilson manufactured 3,700 lamps for the year?

Computing cost of goods manufactured and cost of goods sold 

Use the following information for a manufacturer to compute cost of goods manufactured and cost of goods sold:

Balances:                                             Beginning             Ending 

Direct Materials                               \( 27,000               \) 28,000 

Work-in-Process Inventory             40,000                    32,000 

Finished Goods Inventory                18,000                   25,000 

Other information: 

Purchases of direct materials                                        $ 73,000 

Direct labor                                                                         88,000 

Manufacturing overhead                                                  43,000

Understanding today’s business environment 

Match the following terms to the appropriate statement. Some terms may be used more than once, and some terms may not be used at all.

E-commerce                                                        Just-in-time management (JIT) 

Enterprise resource planning (ERP)               Total quality management (TQM) 

a. A management system that focuses on maintaining lean inventories while producing products as needed by the customer. 

b. A philosophy designed to integrate all organizational areas in order to provide customers with superior products and services while meeting organizational objectives. 

c. Integrates all of a company’s functions, departments, and data into a single system. 

d. Adopted by firms to conduct business on the Internet

Calculating income and cost per service for a service company 

Buddy Grooming provides grooming services for pets. In April, the company earned \(16,300 in revenues and incurred the following operating costs to groom 660 dogs:

Wages Expense                                        \) 4,061 

Grooming Supplies Expense                    1,675 

Building Rent Expense                                900 

Utilities Expense                                          305 

Depreciation Expense—Equipment          55

Requirements 1. What is Buddy’s operating income for April?

Calculating income and cost per service for a service company 

Buddy Grooming provides grooming services for pets. In April, the company earned \(16,300 in revenues and incurred the following operating costs to groom 660 dogs:

Wages Expense                                        \) 4,061 

Grooming Supplies Expense                    1,675 

Building Rent Expense                                900 

Utilities Expense                                          305 

Depreciation Expense—Equipment          55

Requirements 2. What is the cost of service to groom one dog?

Question: Calculating income and cost per unit for a merchandising company 

Conway Brush Company sells standard hair brushes. The following information summarizes Conway’s operating activities for 2018: 

Selling and Administrative Expenses $ 47,058 

Purchases 85,800 

Net Sales Revenue 151,800 

Merchandise Inventory, January 1, 2018 7,920 

Merchandise Inventory, December 31, 2018 11,748 

Requirements 

1. Calculate the operating income for 2018. 

2. Conway sold 6,600 brushes in 2018. Compute the unit cost for one brush.

Question: Applying ethical standards 

Natalia Wallace is the new controller for Smart Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the company’s five-year history. Cauvet explains that financial analysts have again predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies: 

a. Persuade suppliers to postpone billing \(13,000 in invoices until January 1. 

b. Record as sales \)115,000 in certain software awaiting sale that is held in a public warehouse. 

c. Delay the year-end closing a few days into January of the next year so that some of the next year’s sales are included in this year’s sales. 

d. Reduce the estimated Bad Debts Expense from 5% of Sales Revenue to 3%, given the company’s continued strong performance. 

e. Postpone routine monthly maintenance expenditures from December to January. 

Requirements 

1. Which of these suggested strategies are inconsistent with IMA standards? 

2. How might these inconsistencies affect the company’s creditors and stockholders? 

3. What should Wallace do if Cauvet insists that she follow all of these suggestions?

Question: Classifying period costs and product costs 

Lawlor, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while manufacturing weed trimmers: 

• Shaft and handle of weed trimmer 

• Motor of weed trimmer 

• Factory labor for workers assembling weed trimmers 

• Nylon thread used by the weed trimmer (not traced to the product) 

• Glue to hold the housing together 

• Plant janitorial wages 

• Depreciation on factory equipment 

• Rent on plant 

• Sales commissions 

• Administrative salaries 

• Plant utilities 

• Shipping costs to deliver finished weed trimmers to customers

Requirements 

1. Describe the difference between period costs and product costs. 

2. Classify Lawlor’s costs as period costs or product costs. If the costs are product costs, further classify them as direct materials, direct labor, or manufacturing overhead.

Question: Calculating cost of goods sold for merchandising and manufacturing companies 

Below are data for two companies: 

 Company A Company B 

Beginning balances: 

Merchandise Inventory \( 10,600 

Finished Goods Inventory \) 15,000 

Ending balances: 

Merchandise Inventory 13,100 

Finished Goods Inventory 11,700 

Net Purchases 154,500 

Cost of Goods Manufactured 214,500 

Requirements 

1. Define the three business types: service, merchandising, and manufacturing. 

2. Based on the data given for the two companies, determine the business type of each one. 

3. Calculate the cost of goods sold for each company

Question: Preparing a schedule of cost of goods manufactured and an income statement for a manufacturing company 

Gourmet Bones manufactures its own brand of pet chew bones. At the end of December 2018, the accounting records showed the following:

Balances:                                                                Beginning Ending 

Direct Materials \( 13,500 \) 7,500 

Work-in-Process Inventory 0 3,500 

Finished Goods Inventory 0 5,200 

Other information: 

Direct materials purchases$ 36,000 

Plant janitorial services 700 

Sales salaries 6,000 

Delivery costs1,300 

Net sales revenue 107,000 

Utilities for plant 1,300 

Rent on plant 17,000 

Customer service hotline costs 1,200 

Direct labor23,000 

Requirements 

1. Prepare a schedule of cost of goods manufactured for Gourmet Bones for the year ended December 31, 2018. 

2. Prepare an income statement for Gourmet Bones for the year ended December 31, 2018.

 3. How does the format of the income statement for Gourmet Bones differ from the income statement of a merchandiser? 

4. Gourmet Bones manufactured 17,900 units of its product in 2018. Compute the company’s unit product cost for the year, rounded to the nearest cent.

Preparing a schedule of cost of goods manufactured and an income statement for a manufacturing company 

Certain item descriptions and amounts are missing from the monthly schedule of cost of goods manufactured and income statement of Elly Manufacturing Company. Fill in the blanks with the missing words, and replace the Xs with the correct amounts.

Beginning Direct Ending Direct Direct Manufacturing Overhead Total Total Ending Direct Materials Beginning Direct Materials Purchases of Direct Materials \( 27,000 \) X \( X X X (25,000) 180,000 44,000 \) X 56,000 84,000 (20,000) ELLY MANUFACTURING COMPANY

Net Sales Revenue Cost of Goods Sold Total Income Cost of Goods Sold: Gross Profit Expenses: Selling Expenses Administrative Expenses Cost of Goods Ending Beginning \( X \) X 232,000 258,000 X 160,000 98,000 $ 110,000 X X X E

Question: Determining flow of costs through a manufacturer’s inventory accounts 

Root Shoe Company makes loafers. During the most recent year, Root incurred total manufacturing costs of \(26,300,000. Of this amount, \)2,000,000 was direct materials used and \(19,800,000 was direct labor. Beginning balances for the year were Direct Materials, \)700,000; Work-in-Process Inventory, \(1,500,000; and Finished Goods Inventory, \)400,000. At the end of the year, balances were Direct Materials, \(800,000; Work-in-Process Inventory, \)1,200,000; and Finished Goods Inventory, $600,000.

 Requirements Analyze the inventory accounts to determine: 

1. Cost of direct materials purchased during the year. 

2. Cost of goods manufactured for the year. 

3. Cost of goods sold for the year.

Question: Preparing an income statement and calculating unit cost for a service company 

The Windshield Doctors repair chips in car windshields. The company incurred the following operating costs for the month of March 2018:

Salaries and wages \( 12,000 

Windshield repair materials 4,600 

Depreciation on truck 300 

Depreciation on building and equipment 1,200 

Supplies used 300 

Utilities 460 

The Windshield Doctors earned \)23,000 in service revenues for the month of March by repairing 500 windshields. All costs shown are considered to be directly related to the repair service.

 Requirements 

1. Prepare an income statement for the month of March. 

2. Compute the cost per unit of repairing one windshield. 

3. The manager of Windshield Doctors must keep unit operating cost below $50 per windshield in order to get his bonus. Did he meet the goal?

Question: Gateway produces electronic calculators. Suppose Gateway’s standard cost per calculator is \(25 for direct materials and \)68 for conversion costs. The following data applyto August activities:

Direct materials purchased (on account) \( 8,300

Conversion costs incurred 20,500

Number of calculators produced 300 calculators

Number of calculators sold (on account, at \)105 each) 295 calculators

Requirements

1. Prepare summary journal entries for August using JIT costing, including the entryto adjust the Conversion Costs account.

2. The beginning balance of Finished Goods Inventory was $1,300. Use a T-accountto find the ending balance of Finished Goods Inventory.

Preparing an income statement and calculating unit cost for a merchandising company

 Clyde Conway owns Clyde’s Pets, a small retail shop selling pet supplies. On December 31, 2018, the accounting records of Clyde’s Pets showed the following: 

Merchandise Inventory on December 31, 2018 $ 10,100 

Merchandise Inventory on January 1, 2018 15,900 

Net Sales Revenue 56,000 

Utilities Expense for the shop 3,300 

Rent for the shop 4,100 

Sales Commissions 2,650 

Purchases of Merchandise Inventory 25,000 

Requirements

 1. Prepare an income statement for Clyde’s Pets for the year ended December 31, 2018. 

2. Clyde’s Pets sold 3,850 units. Determine the unit cost of the merchandise sold, rounded to the nearest cent

Applying ethical standards 

Ava Borzi is the new controller for Halo Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9% for the first time in the company’s five-year history. Busch explains that financial analysts have again predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He suggests that Borzi talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies: 

a. Persuade suppliers to postpone billing \(18,000 in invoices until January 1. 

b. Record as sales \)120,000 in certain software awaiting sale that is held in a public warehouse. 

c. Delay the year-end closing a few days into January of the next year so that some of the next year’s sales are included in this year’s sales. 

d. Reduce the estimated Bad Debts Expense from 3% of Sales Revenue to 2%, given the company’s continued strong performance. 

e. Postpone routine monthly maintenance expenditures from December to January. 

Requirements 

1. Which of these suggested strategies are inconsistent with IMA standards? 

2. How might these inconsistencies affect the company’s creditors and stockholders? 

3. What should Borzi do if Busch insists that she follow all of these suggestions?

Classifying period costs and product costs

 Langley, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while manufacturing edgers: 

• Handle and shaft of edger 

• Motor of edger 

• Factory labor for workers assembling edgers 

• Lubricant used on bearings in the edger (not traced to the product) 

• Glue to hold the housing together 

• Plant janitorial wages 

• Depreciation on factory equipment 

• Rent on plant 

• Sales commissions 

• Administrative salaries 

• Plant utilities 

• Shipping costs to deliver finished edgers to customers 

Requirements 

1. Describe the difference between period costs and product costs.

 2. Classify Langley’s costs as period costs or product costs. If the costs are product costs, further classify them as direct materials, direct labor, or manufacturing overhead.

Calculating cost of goods sold for merchandising and manufacturing companies 

Below are data for two companies:

                                                   Company 1          Company 2 

Beginning balances: 

Merchandise Inventory        \( 11,600 

Finished Goods Inventory                                    \) 15,400 

Ending balances: 

Merchandise Inventory           12,400 

Finished Goods Inventory                                      11,300 

Net Purchases                          152,500 

Cost of Goods Manufactured                                214,500 

Requirements 

1. Define the three business types: service, merchandising, and manufacturing. 

2. Based on the data given for the two companies, determine the business type of each one. 

3. Calculate the cost of goods sold for each company

Preparing a schedule of cost of goods manufactured and an income statement for a manufacturing company 

Chewy Bones manufactures its own brand of pet chew bones. At the end of December 2018, the accounting records showed the following: 

Balances:                                                           Beginning           Ending 

Direct Materials                                             \( 13,400            \) 10,500 

Work-in-Process Inventory                               0                        1,500 

Finished Goods Inventory                                 0                        5,400 

Other information: 

Direct materials purchases                                                       $ 39,000 

Plant janitorial services                                                                   900 

Sales salaries                                                                                   5,100 

Delivery costs                                                                                 1,700 

Net sales revenue                                                                      115,000 

Utilities for plant                                                                          1,200 

Rent on plant                                                                                9,000 

Customer service hotline costs                                                1,600 

Direct labor                                                                                16,000 

Requirements 

1. Prepare a schedule of cost of goods manufactured for Chewy Bones for the year ended December 31, 2018. 

2. Prepare an income statement for Chewy Bones for the year ended December 31, 2018. 

3. How does the format of the income statement for Chewy Bones differ from the income statement of a merchandiser? 

4. Chewy Bones manufactured 17,500 units of its product in 2018. Compute the company’s unit product cost for the year, rounded to the nearest cent.

Preparing a schedule of cost of goods manufactured and an income statement for a manufacturing company 

Certain item descriptions and amounts are missing from the monthly schedule of cost of goods manufactured and income statement of Charlie Manufacturing Company. Fill in the blanks with the missing words, and replace the Xs with the correct amounts.

ing Direct Ending Direct Direct Manufacturing Overhead Total Costs Total Costs Ending Direct Materials Beginning Direct Materials Purchases of Direct Materials \( 26,000 \) X \( X X X (29,000) 177,000 50,000 \) X 51,000 81,000 (26,000) C

Net Sales Revenue Cost of Goods Sold Total Income Cost of Goods Sold: Gross Profit Expenses: Selling Expenses Administrative Expenses Cost of Goods Ending Beginning \( X 232,000 268,000 X 150,000 90,000 \) 118,000 X X X $ X CHARLIE MANUFACTURING COMPANY June 30

Determining the flow of costs through a manufacturer’s inventory accounts 

True Fit Shoe Company makes loafers. During the most recent year, True Fit incurred total manufacturing costs of \(21,900,000. Of this amount, \)2,600,000 was direct materials used and \(14,800,000 was direct labor. Beginning balances for the year were Direct Materials, \)700,000; Work-in-Process Inventory, \(1,500,000; and Finished Goods Inventory, \)1,100,000. At the end of the year, balances were Direct Materials, \(800,000; Work-in-Process Inventory, \)2,000,000; and Finished Goods Inventory, $1,080,000. 

Requirements Analyze the inventory accounts to determine: 

1. Cost of direct materials purchased during the year. 

2. Cost of goods manufactured for the year. 

3. Cost of goods sold for the year.