SOLUTION MANUAL
HORNGREN’S ACCOUNTING: THE MANAGERIAL CHAPTERS
,Tableof contents
1. Introduction to managerial accounting
2. Job order costing
3. Process costing
4. Cost-volume-profit analysis
5. Master budgets
6. Flexible budgets and standard cost systems
7. Cost allocation and responsibility accounting
8. Short-term business decisions
9. Capital investment decisions
,Chapter m:1
Introduction to managerial accounting
Review questions
1. What is the primary purpose of managerial accounting?
The primary purpose of managerial accounting is to provide information to help managers pla
n,direct, control, and make decisions.
2. List six differences between financial accounting and managerial accounting.
Financial accounting and managerial accounting differ on the following 6 dimensions: (1) primary
users, (2) purpose of information, (3) focus and time dimension of the information, (4) rules and r
e-strictions, (5) scope of information, and (6) behavioral.
3. Explain the difference between line positions and staff positions.
Line positions are directly involved in providing goods or services to customers. Staff position
ssupport line positions.
4. Explain the differences between planning, directing, and controlling.
Planning means choosing goals and deciding how to achieve them. Directing involves running the
day-to-
Day operations of a business. Controlling is the process of monitoring operations and keepingthe c
ompany on track.
5. List the four ima standards of ethical practice and briefly describe each.
The four ima standards of ethical practice and a description of each follow.
I. Competence.
maintain an appropriate level of professional leadership and expertise by enhanci
ngknowledge and skills.
perform professional duties in accordance with relevant laws, regulations, and technic
alstandards.
Provide decision support information and recommendations that are accurate, clear, concise,
, And timely.
recognise and help mange risk.
II. Confidentiality.
keep information confidential except when disclosure is authorized or legally required.
Inform all relevant parties regarding appropriate use of confidential information. Monitor
toensure compliance.
refrain from using confidential information for unethical or illegal advantage.
III. Integrity.
mitigate actual conflicts of interest. Regularly communicate with business associates to avoi
dapparent conflicts of interest. Advise all parties of any potential conflicts.
refrain from engaging in any conduct that would prejudice carrying out duties ethically.
Abstain from engaging in or supporting any activity that might discredit the profession.
Contribute to a positive ethical culture and place integrity of the profession above perso
nalinterest.
5, cont.
IV. Credibility.
communicate information fairly and objectively.
Provide all relevant information that could reasonably be expected to influence an intend
eduser’s understanding of the reports, analyses, or recommendations.
report any delays or deficiencies in information, timeliness, processing, or internal contro
lsin conformance with organization policy and/or applicable law.
communicate any professional limitations or other constraints that would preclude respon
si-ble judgment or successful performance of an activity.
6. Describe a service company and give an example.
Service companies sell time, skills, and knowledge. Examples of service companies include phone
service companies, banks, cleaning service companies, accounting firms, law firms, medical physi
-cians, and online auction services.
7. Describe a merchandising company and give an example.
Merchandising companies resell products they buy from suppliers. Merchandisers keep an invento
ryof products, and managers are accountable for the purchasing, storage, and sale of the products.
Ex- amples of merchandising companies include toy stores, grocery stores, and clothing stores.
8. How do manufacturing companies differ from merchandising companies?
Merchandising companies resell products they previously bought from suppliers, whereas manufa
c-
, Turing companies use labor, equipment, supplies, and facilities to convert raw materials into new f
in-
Ished products. In contrast to merchandising companies, manufacturing companies have a broad r
ange of production activities that require tracking costs on three kinds of inventory.
,9. List the three inventory accounts used by manufacturing companies and describe each.
The three inventory accounts used by manufacturing companies are raw materials inventory, wor
k-in-process inventory, and finished goods inventory.
Raw materials inventory includes materials used to manufacture a product. Work-in-
process inven-
Tory includes goods that have been started in the manufacturing process but are not yet complete
.
Finished goods inventory includes completed goods that have not yet been sold.
10. Explain the difference between a direct cost and an indirect cost.
A direct cost is a cost that can be easily and cost-effectively traced to a cost object (which is any-
thing for which managers want a separate measurement of cost). An indirect cost is a cost that ca
n-not be easily or cost-effectively traced to a cost object.
11. What are the three manufacturing costs for a manufacturing company? Describe each.
The three manufacturing costs for a manufacturing company are direct materials, direct labor, an
d manufacturing overhead. Direct materials are materials that become a physical part of a finishe
d product and whose costs are easily traceable to the finished product. Direct labor is the labor c
ost ofthe employees who convert materials into finished products. Manufacturing overhead inclu
des all manufacturing costs except direct materials and direct labor, such as indirect materials, ind
irect la- bor, factory depreciation, factory rent, and factory property taxes.
12. Give five examples of manufacturing overhead.
Examples of manufacturing overhead include costs of indirect materials, indirect labor, repair and
maintenance in factory, factory utilities, factory rent, factory insurance, factory property taxes, ma
n-
Ufacturing plant managers’ salaries, and depreciation on manufacturing buildings and equipment.
13. What are prime costs? Conversion costs?
Prime costs are direct materials plus direct labor. Conversion costs are direct labor plus manufactu
r-ing overhead. Note that direct labor is classified as both a prime cost and a conversion cost.
14. What are product costs for a manufacturing company?
, Product costs are the cost of purchasing or making a product. These costs are recorded as an asset
and not expensed until the product is sold. Product costs for a manufacturing company include dir
ectmaterials, direct labor, and manufacturing overhead.
15. How do period costs differ from product costs for a manufacturing company?
Period costs for a manufacturing company are non-
Manufacturing costs that are expensed in the same accounting period in which they are incurre
d, whereas product costs are recorded as an assetand not expensed until the accounting period
in which the product is sold.
16. How is cost of goods manufactured calculated?
Cost of goods manufactured is calculated as beginning work-in-process inventory + total manu-
facturing costs incurred during the year – ending work-in-
Process inventory. Total manufacturingcosts incurred during the year = direct materials used + direct
labor + manufacturing overhead.
17. How does a manufacturing company calculate cost of goods sold? How is this different from a me
r-chandising company?
For a manufacturing company, the activity in the finished goods inventory account provides the in
-
Formation for determining cost of goods sold. A manufacturing company calculates cost of goods
sold as beginning finished goods inventory + cost of goods manufactured –
Ending finished good inventory. In addition, a manufacturing company must track costs from raw
materials inven-tory and work-in-
Process inventory in order to compute cost of goods manufactured used in the previous equation.
For a merchandising company, the activity in the merchandise inventory account provides the in-
formation for determining cost of goods sold. A merchandising company calculates cost of good
ssold as beginning merchandise inventory + purchases and freight in – ending merchandise inven-
tory.
18. How does a manufacturing company calculate unit product cost?
A manufacturing company calculates unit product cost as cost of goods manufactured / total nu
m-ber of units produced.
19. How does a service company calculate unit cost per service provided?
A service company calculates unit cost per service provided as total operating costs / total numb
erof services provided.
,20. How does a merchandising company calculate unit cost per item sold?
A merchandising company calculates unit cost per item sold as total cost of goods sold / total num-ber
of items sold.
,Short exercises
S-m:1-1
Comparing managerial accounting and financial accounting
For each of the following, indicate whether the statement relates to managerial accounting (ma) or fin
an-cial accounting (fa):
a. Helps investors make investment decisions.
b. Provides detailed reports on parts of the company.
c. Helps in planning and controlling operations.
d. Reports must follow generally accepted accounting principles (gaap).
e. Reports audited annually by independent certified public accountants.
a. Fa
b. Ma
c. Ma
d. Fa
e. Fa
S-m:1-2
Identifying ethical standards
The institute of management accountants’ statement of ethical professional practice requires manageri
alaccountants to meet standards regarding competence, confidentiality, integrity, and credibility. Cons
ider the following situations. Which standard(s) is(are) violated in each situation?
a. You tell your brother that your company will report earnings significantly above financial ana
-lysts’ estimates.
b. You see others take home office supplies for personal use. As an intern, you do the same thin
g,assuming that this is a ―perk.‖
c. At a company-paid conference on e-commerce, you skip the afternoon session and go sightseeing.
d. You failed to read the detailed specifications of a new accounting software package that you as
ked your company to purchase. After it is installed, you are surprised that it is incompatible wit
h some of your company’s older accounting software.
e. You do not provide top management with the detailed job descriptions they requested because
youfear they may use this information to cut a position in your department.
, a. Confidentiality
b. Integrity
HORNGREN’S ACCOUNTING: THE MANAGERIAL CHAPTERS
,Tableof contents
1. Introduction to managerial accounting
2. Job order costing
3. Process costing
4. Cost-volume-profit analysis
5. Master budgets
6. Flexible budgets and standard cost systems
7. Cost allocation and responsibility accounting
8. Short-term business decisions
9. Capital investment decisions
,Chapter m:1
Introduction to managerial accounting
Review questions
1. What is the primary purpose of managerial accounting?
The primary purpose of managerial accounting is to provide information to help managers pla
n,direct, control, and make decisions.
2. List six differences between financial accounting and managerial accounting.
Financial accounting and managerial accounting differ on the following 6 dimensions: (1) primary
users, (2) purpose of information, (3) focus and time dimension of the information, (4) rules and r
e-strictions, (5) scope of information, and (6) behavioral.
3. Explain the difference between line positions and staff positions.
Line positions are directly involved in providing goods or services to customers. Staff position
ssupport line positions.
4. Explain the differences between planning, directing, and controlling.
Planning means choosing goals and deciding how to achieve them. Directing involves running the
day-to-
Day operations of a business. Controlling is the process of monitoring operations and keepingthe c
ompany on track.
5. List the four ima standards of ethical practice and briefly describe each.
The four ima standards of ethical practice and a description of each follow.
I. Competence.
maintain an appropriate level of professional leadership and expertise by enhanci
ngknowledge and skills.
perform professional duties in accordance with relevant laws, regulations, and technic
alstandards.
Provide decision support information and recommendations that are accurate, clear, concise,
, And timely.
recognise and help mange risk.
II. Confidentiality.
keep information confidential except when disclosure is authorized or legally required.
Inform all relevant parties regarding appropriate use of confidential information. Monitor
toensure compliance.
refrain from using confidential information for unethical or illegal advantage.
III. Integrity.
mitigate actual conflicts of interest. Regularly communicate with business associates to avoi
dapparent conflicts of interest. Advise all parties of any potential conflicts.
refrain from engaging in any conduct that would prejudice carrying out duties ethically.
Abstain from engaging in or supporting any activity that might discredit the profession.
Contribute to a positive ethical culture and place integrity of the profession above perso
nalinterest.
5, cont.
IV. Credibility.
communicate information fairly and objectively.
Provide all relevant information that could reasonably be expected to influence an intend
eduser’s understanding of the reports, analyses, or recommendations.
report any delays or deficiencies in information, timeliness, processing, or internal contro
lsin conformance with organization policy and/or applicable law.
communicate any professional limitations or other constraints that would preclude respon
si-ble judgment or successful performance of an activity.
6. Describe a service company and give an example.
Service companies sell time, skills, and knowledge. Examples of service companies include phone
service companies, banks, cleaning service companies, accounting firms, law firms, medical physi
-cians, and online auction services.
7. Describe a merchandising company and give an example.
Merchandising companies resell products they buy from suppliers. Merchandisers keep an invento
ryof products, and managers are accountable for the purchasing, storage, and sale of the products.
Ex- amples of merchandising companies include toy stores, grocery stores, and clothing stores.
8. How do manufacturing companies differ from merchandising companies?
Merchandising companies resell products they previously bought from suppliers, whereas manufa
c-
, Turing companies use labor, equipment, supplies, and facilities to convert raw materials into new f
in-
Ished products. In contrast to merchandising companies, manufacturing companies have a broad r
ange of production activities that require tracking costs on three kinds of inventory.
,9. List the three inventory accounts used by manufacturing companies and describe each.
The three inventory accounts used by manufacturing companies are raw materials inventory, wor
k-in-process inventory, and finished goods inventory.
Raw materials inventory includes materials used to manufacture a product. Work-in-
process inven-
Tory includes goods that have been started in the manufacturing process but are not yet complete
.
Finished goods inventory includes completed goods that have not yet been sold.
10. Explain the difference between a direct cost and an indirect cost.
A direct cost is a cost that can be easily and cost-effectively traced to a cost object (which is any-
thing for which managers want a separate measurement of cost). An indirect cost is a cost that ca
n-not be easily or cost-effectively traced to a cost object.
11. What are the three manufacturing costs for a manufacturing company? Describe each.
The three manufacturing costs for a manufacturing company are direct materials, direct labor, an
d manufacturing overhead. Direct materials are materials that become a physical part of a finishe
d product and whose costs are easily traceable to the finished product. Direct labor is the labor c
ost ofthe employees who convert materials into finished products. Manufacturing overhead inclu
des all manufacturing costs except direct materials and direct labor, such as indirect materials, ind
irect la- bor, factory depreciation, factory rent, and factory property taxes.
12. Give five examples of manufacturing overhead.
Examples of manufacturing overhead include costs of indirect materials, indirect labor, repair and
maintenance in factory, factory utilities, factory rent, factory insurance, factory property taxes, ma
n-
Ufacturing plant managers’ salaries, and depreciation on manufacturing buildings and equipment.
13. What are prime costs? Conversion costs?
Prime costs are direct materials plus direct labor. Conversion costs are direct labor plus manufactu
r-ing overhead. Note that direct labor is classified as both a prime cost and a conversion cost.
14. What are product costs for a manufacturing company?
, Product costs are the cost of purchasing or making a product. These costs are recorded as an asset
and not expensed until the product is sold. Product costs for a manufacturing company include dir
ectmaterials, direct labor, and manufacturing overhead.
15. How do period costs differ from product costs for a manufacturing company?
Period costs for a manufacturing company are non-
Manufacturing costs that are expensed in the same accounting period in which they are incurre
d, whereas product costs are recorded as an assetand not expensed until the accounting period
in which the product is sold.
16. How is cost of goods manufactured calculated?
Cost of goods manufactured is calculated as beginning work-in-process inventory + total manu-
facturing costs incurred during the year – ending work-in-
Process inventory. Total manufacturingcosts incurred during the year = direct materials used + direct
labor + manufacturing overhead.
17. How does a manufacturing company calculate cost of goods sold? How is this different from a me
r-chandising company?
For a manufacturing company, the activity in the finished goods inventory account provides the in
-
Formation for determining cost of goods sold. A manufacturing company calculates cost of goods
sold as beginning finished goods inventory + cost of goods manufactured –
Ending finished good inventory. In addition, a manufacturing company must track costs from raw
materials inven-tory and work-in-
Process inventory in order to compute cost of goods manufactured used in the previous equation.
For a merchandising company, the activity in the merchandise inventory account provides the in-
formation for determining cost of goods sold. A merchandising company calculates cost of good
ssold as beginning merchandise inventory + purchases and freight in – ending merchandise inven-
tory.
18. How does a manufacturing company calculate unit product cost?
A manufacturing company calculates unit product cost as cost of goods manufactured / total nu
m-ber of units produced.
19. How does a service company calculate unit cost per service provided?
A service company calculates unit cost per service provided as total operating costs / total numb
erof services provided.
,20. How does a merchandising company calculate unit cost per item sold?
A merchandising company calculates unit cost per item sold as total cost of goods sold / total num-ber
of items sold.
,Short exercises
S-m:1-1
Comparing managerial accounting and financial accounting
For each of the following, indicate whether the statement relates to managerial accounting (ma) or fin
an-cial accounting (fa):
a. Helps investors make investment decisions.
b. Provides detailed reports on parts of the company.
c. Helps in planning and controlling operations.
d. Reports must follow generally accepted accounting principles (gaap).
e. Reports audited annually by independent certified public accountants.
a. Fa
b. Ma
c. Ma
d. Fa
e. Fa
S-m:1-2
Identifying ethical standards
The institute of management accountants’ statement of ethical professional practice requires manageri
alaccountants to meet standards regarding competence, confidentiality, integrity, and credibility. Cons
ider the following situations. Which standard(s) is(are) violated in each situation?
a. You tell your brother that your company will report earnings significantly above financial ana
-lysts’ estimates.
b. You see others take home office supplies for personal use. As an intern, you do the same thin
g,assuming that this is a ―perk.‖
c. At a company-paid conference on e-commerce, you skip the afternoon session and go sightseeing.
d. You failed to read the detailed specifications of a new accounting software package that you as
ked your company to purchase. After it is installed, you are surprised that it is incompatible wit
h some of your company’s older accounting software.
e. You do not provide top management with the detailed job descriptions they requested because
youfear they may use this information to cut a position in your department.
, a. Confidentiality
b. Integrity
