Summary Business Accounting

CHAPTER 18
MANAGERIAL ACCOUNTING CONCEPTS AND PRINCIPLES

DISCUSSION QUESTIONS

1. Financial accounting and managerial accounting are different in several ways. Financial
accounting information is reported in statements that are useful to persons or groups outside of
a company. These statements objectively report the results of past operations for fixed periods of
time and the financial condition of the business under generally accepted accounting principles.
Managerial accounting information uses both subjective and objective information to meet the
specific needs of management. This non-GAAP information can be reported periodically or as
needed by management and can be reported for the entire entity or for segments of the organization.
This information includes (i) historical data, which provide objective measures of past operations,
and (ii) estimated data, which provide subjective estimates about future decisions.
2. a. A line department is directly involved in the basic objectives of the organization, while a
staff department provides service, assistance, or advice to line departments or other staff
departments.
b. (1) Sales Department
(2) Personnel Department
3. Direct materials cost
4. Prime costs are the combination of direct materials and direct labor costs, while conversion
costs are the combination of direct labor costs and factory overhead costs.
5. Product costs are composed of three elements of manufacturing costs: direct materials cost,
direct labor cost, and factory overhead cost. These costs are treated as assets until the product is
sold. Product costs are sometimes referred to as inventoriable costs. Period costs are costs that
are used in generating revenue during the current period. They are recognized as expenses on
the current period’s income statement.
6. The three inventory accounts for a manufacturing business are as follows:
a. Finished goods, representing goods in the state in which they are to be sold.
b. Work in process, representing goods in the process of manufacture.
c. Materials, representing goods in the state in which they were acquired.
7. Finished goods, work in process, and materials
8. The cost of finished goods and the cost of work in process included the following:
a. Direct materials—the costs of materials that enter directly into the finished product.
b. Direct labor—the wages of factory workers who convert materials into a finished product.
c. Factory overhead—the remaining costs, other than direct materials and direct labor, of
operating a factory.
9. Cost of goods sold
10. A merchandising business purchases merchandise (products) in a finished state for resale to
customers. The cost of product sold is called cost of merchandise sold. A manufacturer makes
the product it sells using direct materials, direct labor, and factory overhead. The cost of the
product sold is generally called cost of goods sold.


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, CHAPTER 18 Managerial Accounting Concepts and
Principles
PRACTICE EXERCISES
PE 18–1A
Controlling (a)
Planning (c)
Decision making (b)


PE 18–1B
Planning (a)
Directing (c)
Controlling (b)


PE 18–2A
a. DL
b. FO
c. DM
d. FO


PE 18–2B
a. DM (or FO if the cost is immaterially small)
b. DL
c. FO
d. DM


PE 18–3A
a. B
b. C
c. P
d. C


PE 18–3B
a. P
b. B
c. C (or P if significant)
d. C




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© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

, CHAPTER 18 Managerial Accounting Concepts and
Principles
PE 18–4A
a. PE 18–5A Product cost
b. Product cost
c. Period cost
d. Period cost


PE 18–4B
a. Period cost
b. Product cost
c. Product cost
d. Period cost




a. Work in process inventory, January 1……………………………… $ 70,000
Cost of direct materials used in production……………………… $16,800
Direct labor……………………………………………………………… 43,400
Factory overhead……………………………………………………… 28,000
Total manufacturing costs incurred during January…………… 88,200
Total manufacturing costs………………………………………… $158,200
Less work in process inventory, January 31……………………… 74,200
Cost of goods manufactured………………………………………… $ 84,000

b. Finished goods inventory, January 1……………………………… $ 29,400
Cost of goods manufactured………………………………………… 84,000
Cost of finished goods available for sale………………………… $113,400
Less finished goods inventory, January 31……………………… 33,600
Cost of goods sold…………………………………………………… $ 79,800


PE 18–5B
a. Work in process inventory, July 1………………………………… $ 32,800
Cost of direct materials used in production……………………… $67,200
Direct labor……………………………………………………………… 88,000
Factory overhead……………………………………………………… 44,800
Total manufacturing costs incurred during July………………… 200,000
Total manufacturing costs………………………………………… $232,800
Less work in process inventory, July 31…………………………… 29,600
Cost of goods manufactured………………………………………… $203,200

b. Finished goods inventory, July 1………………………………… $ 37,600
Cost of goods manufactured………………………………………… 203,200
Cost of finished goods available for sale………………………… $240,800
Less finished goods inventory, July 31…………………………… 27,200
Cost of goods sold…………………………………………………… $213,600



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© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.