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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Document preview page 1

Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 1

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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition

Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition makes solving textbook questions easier with expertly crafted solutions.

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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 1 preview imageAppendix I-The Sarbanes-Oxley Act, Internal Controls, and Management AccountingApp I-1Solutions Manualto accompanyMANAGERIALACCOUNTINGTenth Edition (Global Edition)Ronald W. HiltonCornell UniversityDavid E. PlattUniversity of Texas at Austin
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 2 preview image
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 3 preview imageChapter01-The Changing Role of ManagerialAccounting in a Dynamic Business Environment1-1CHAPTER 1THE CHANGING ROLE OF MANAGERIALACCOUNTING IN A DYNAMIC BUSINESS ENVIRONMENTLearning Objectives1.Define managerial accounting and describe its role in the managementprocess.2.Explain four fundamental management processes that help organizationsattain their goals.3.List and describe five objectives of managerial accounting activity.4.Explain the major differences between managerial and financial accounting.5.Describe the accounting and finance structure in an organization.6.Describe the roles of an organization's chief financial officer (CFO) orcontroller, treasurer, and internal auditor.7.Understand and explain the value chain concept.8.Explain how investments in capacity affect managerial decisions making.9.Discuss the professional organizationsandcertificationsin the field ofmanagerial accounting.10.Describethe ethical responsibilities and ethical standards that apply tomanagerial accounting.
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 4 preview imageChapter01-The Changing Role of ManagerialAccounting in a Dynamic Business Environment1-2Chapter OverviewI.Managing Resources, Activities, and PeopleA.What is managerial accounting?B.Management activities1.Decision making2.Planning3.Directing operational activities4.ControllingII.How Managerial Accounting Adds Value to the OrganizationA.Objectives of managerial accounting activity1.Provides information for decision making and planning2.Assists in directing and controlling3.Motivates managers and employees4.Measures performance5.Assesses an organization's competitive positionB.Balanced ScorecardC.Managerial Versus Financial Accounting1.Focus of reports2.External vs. internal users of information3.Degree of regulation4.Information focusD.Managerial Accounting in Different Types of OrganizationsIII.WhereDo We FindManagerial Accountants in an Organization?A.Organization Chart1.Line and staff positions2.Chief financial officer (CFO) or controller3.Treasurer4.Internal auditorB.Cross-functional deploymentC.Physical locationIV.The Operational Context of Managerial AccountingA.Managerial Accounting and the Value ChainB.Capacity and Capacity CostsC.Cost management systemsV.Managerial Accounting as a CareerA.Professional OrganizationsB.Professional CertificationVI.Managerial Accounting and the Ethical Climate of Business
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 5 preview imageChapter01-The Changing Role of ManagerialAccounting in a Dynamic Business Environment1-3Key Lecture ConceptsI.Managing Resources, Activities, and People•Types of organizations include manufacturers, retailers, serviceproviders, agribusinesses, and nonprofit firms. These organizationshave goals—for example: growth, profit, quality, leadership, etc.•Organizations have information needs in the financial, production,personnel, environmental, and legal areas. Managerial accountingprovides some of this information.Managerial accountingis theprocess of identifying, measuring, analyzing, interpreting, andcommunicating information in pursuit of an organization's goals.•The role of managerial accountants has expanded in recent years.Managerial accountantsare specialists in using the tools of managerialaccounting to help the organization and its managers run the operationsmoothly.Formerly in staff positions, managerial accountants nowserve as internal business consultants, trusted advisors, and "businesspartners."•Management functions performed within an organization can often besummarized as decision making, planning, the directing of operationalactivities, and controlling.➢Decision making—theprocess of choosing among availablealternatives➢Planning—developinga detailed financial and operationaldescription of anticipated operations➢Directing operational activities—runningthe organization on aday-to-day basis➢Controlling—ensuringthat the organization operates in theintended manner to achieve its goals
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 6 preview imageChapter01-The Changing Role of ManagerialAccounting in a Dynamic Business Environment1-4II.How Managerial Accounting Adds Value to the Organization•Provides managers with information (e.g., product costs, budgets, cashflows). The information includes financial and nonfinancial data tohelp managers with strategic planning and decision making.•Assists in directing and controlling (analyzing and comparing actualperformance to budgeted plans;attention-directingto highlightsuccessful or problem areas).•Motivates managers to achieve the organization's goals bycommunicating the plans, providing a measurement of how well theplan was achieved, and prompting an explanation of deviations fromplans.•Measures performance not only for the entire organization, as infinancial accounting, but also for many subunits (divisions,departments, managers).•Assesses the organization's competitive position in the rapidlychanging business environment. Looks at how well the firm is doinginternally, in the eyes of its customers, from the standpoint ofinnovation and continuous improvement, and financially.➢The preceding factors are integrated in a model of performanceevaluation known as thebalanced scorecard.•Managerial Versus Financial Accounting➢Financial accountingis intended for external users (investors,creditors, etc.);is heavily regulated by the FASB, SEC; is mandatoryfor publicly-traded companies; is historic in nature.➢Managerial accountingis intended for internal users(managers); is not heavily regulated; is not mandatory but rather isadopted based on costs/benefits; is future-oriented.
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 7 preview imageChapter01-The Changing Role of ManagerialAccounting in a Dynamic Business Environment1-5III.WhereDo We Find Managerial Accountants in an Organization?•Linepersonnel are directly involved in carrying out the mission of theorganization (e.g., assembly workers in a factory, doctors in a hospital,teachers in a school).•Staffpersonnel (accountants, lawyers, personnel directors, and otheradministrative positions) provide support for the organization'smission.➢An accountant in a CPA firm would be in a line position,because the organization's mission is providing accountingservices. In contrast, an accountant at a university would be in astaff position.•Thechief financial officer (CFO)orcontrolleris the chief accountantresponsible for the supervision of the accounting department,preparation of reports, and the interpretation of information to linemanagers.•Thetreasureris responsible for raising capital, safeguarding assets,managing investments, insurance coverage, and the credit policy of anorganization.•Theinternal auditorreviews accounting procedures, reports, andperformance on behalf of top management.•More and more, managerial accountants work throughout an entireenterprise and are deployed in cross-functional management teams,working with top executives and personnel from a variety of functionalareas (e.g., marketing, production, engineering, and operations).
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 8 preview imageChapter01-The Changing Role of ManagerialAccounting in a Dynamic Business Environment1-6IV.The Operational Context of Managerial Accounting•More attention is being paid to thevalue chain—theset of linked,value-creating activities, from conducting product research, tomanufacturing, to providing customer service.➢A number of activities occur prior to the production of a good orservice (i.e., upstream activities) and several occur after (so-called downstream activities).•To achieve an organization's goals, managers must understand theentire value chain as well as the related cost-causing factors(costdrivers).•Managing the cost relationships within a value chain to the firm'sadvantage is calledstrategic cost management.•A key objective of managerial accounting information is themanagement of an organization’s capacity and the costs of providingthat capacity.Capacityis the upper limit on the amount of goods or services that anorganization can produce in a specified period of time. There arevarious concepts of an organization’s capacity.Theoretical capacityrefers to the upper limit on production of goods or services ifeverything works perfectly.Practical capacityallows for normaloccurrences such as machine downtime and employee fatigue orillness.•The growing use ofcost management systems—planningand controlsystems that measure the cost of resources and eliminatenon-value-added costs(costs that can be eliminated with no deterioration ofproductquality, performance, or perceived value).➢These systems also help determine the efficiency andeffectiveness of the enterprise, and identify new opportunitiesfor the organization.➢Activity-based costing (ABC)is a system for determining thecost of producinggoods orservices.➢Activity-basedmanagement(ABM)is the process of using anABC system to improve the operations of an organization.V.Managerial Accounting as a Career•The Institute of Management Accountants (IMA) administers the
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 9 preview imageChapter01-The Changing Role of ManagerialAccounting in a Dynamic Business Environment1-7Certified Management Accountant (CMA)program. Studentsinterested in internal accounting rather than employment in a publicaccounting firm may wish to pursue this designation.VI.Managerial Accountingand theEthicalClimateof Business•Recent corporate scandals have involved mismanagement, allegedethical lapses, and criminal behavior. Causes of these scandals wereattributable to:➢Greedy corporate executives, managers who made over-reaching business deals and a lack of oversight by boards ofdirectors and audit committees.➢Shoddy work by external auditors, a lack of sufficient probingby Wall Street analysts and the financial press, and overlyaggressive accounting.•Various reforms have begun to surface that remedy deficiencies incorporate governance and accounting. For example, the Sarbanes-Oxley Act both:➢Created the Public Company Accounting Oversight Board(PCAOB) to establish auditing standards and provide for anaudit quality review process, and➢Limits the types of non-audit work that public accounting firmscan perform for their audit clients.•Professional ethics require high standards of conduct frommanagement accountants in the areas of competence, confidentiality,integrity, and credibility.Teaching Tip:If you plan to highlight ethics throughout the course, you maywant to spend extra time in class discussing theFocus on Ethicsboxat the endof this chapter. The box summarizes the standards of conduct just noted bythe use of various detailed examples.
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 10 preview imageChapter01-The Changing Role of ManagerialAccounting in a Dynamic Business Environment1-8Teaching OverviewThe main objective of the firsttwoclass meetingsis to help students understand theoverall context in which managerial accounting satisfies the information needs of anenterprise.I urge students to think not only about the discipline in its current formbut also how it should evolve to meet the changing needs of organizations.Therefore, the firsttwoclassesinclude not only the usual discussion of the syllabusbut also the role of the management accountant in an organization, the differencesbetween financial accounting and managerial accounting, managerial accounting asa tool for managers, and emerging trends in the field. It is especially important tostress the cost-benefit theme, as cost-benefit analysis will surface throughout thecourse and text.Students have very insightful thoughts on the emerging trends in business today.Therefore, I try to generate some discussion of their ideas early on. (I also want tocommunicate the need for student participation—not always an easy task if thegroup is large.) After some discussion, I like to conclude thesecond classby havingthe students suggest some accounting information needs that they feel managershave in the current business environment. Their suggestions usually include: howmuch does my product or service cost? How much inventory should I have onhand? At what point does my business breakeven? How do I put together abudget? How do I project cash flows?As class ends, I tell students that these arethe very issues we will be working on during the semester and that one of our firsttasks will be to answer the basic question,"How can we calculate the cost to producea product or service?"In summary,bythe end of thesecondclass, students shouldhave a basic understanding of managerial accounting's purposeand appreciatetheneed tostudy the discipline.
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 11 preview imageChapter01-The Changing Role of ManagerialAccounting in a Dynamic Business Environment1-9Links to the TextHomework GridItem No.LearningObjectivesCompletionTime (min.)SpecialFeatures*Exercises:1-253,4251-262,3201-271, 3, 530CProblems:1-284, 630W, E1-294, 5, 6,825G1-306, 7, 9, 1045W, E1-313,825Cases:1-321, 3, 6,7, 9,1040E, G1-339, 1040W, E, G,C*W = written responseE = Ethical issueG = Group workI = InternationalC = Internet use
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 12 preview imageChapter02-Basic Cost Management Concepts2-1CHAPTER 2BASIC COST MANAGEMENT CONCEPTSLearning Objectives1.Explain what is meant by the wordcost.2.Distinguish among product costs, period costs, and expenses.3.Describe the role of costsinpublished financial statements.4.Listfivetypes of manufacturing operationsand describe mass customization.5.Give examples of three types of manufacturing costs.6.Prepare a schedule of cost of goods manufactured, a schedule of cost of goodssold, and an income statement for a manufacturer.7.Understand the importance of identifying an organization's cost drivers.8.Describe the behavior of variable and fixed costs, in total and on a per-unitbasis.9.Distinguish among direct, indirect, controllable, and uncontrollable costs.10.Define and give examples of an opportunity cost, an out-of-pocket cost, asunk cost, a differential cost, a marginal cost, and an average cost.
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 13 preview imageChapter02-Basic Cost Management Concepts2-2Chapter OverviewI.WhatDo We Mean by a Cost?A.Product costs, period costs, and expensesII.CostsonFinancial StatementsA.Income statement1.Selling and administrative costs2.Costs of manufactured inventoryB.Balance sheet1.Raw-materials inventory2.Work-in-process inventory3.Finished-goods inventoryIII.Manufacturing Operations and Manufacturing CostsA.Job shop, batch, assembly line, continuous flowB.Assembly manufacturingC.Manufacturing costs1.Direct material2.Direct labor3.Manufacturing overhead4.Indirect material5.Indirect labor6.Other manufacturing costs7.Conversion cost, prime costIV.Manufacturing Cost FlowsA.Cost of goods manufacturedB.Production costs in service industry firms and nonprofit organizationsV.Basic Cost Management Concepts: Different Costs for Different PurposesA.The cost driver team1.Variable and fixed costsB.The cost management and control team1.Direct and indirect costs2.Controllable and uncontrollable costsC.The outsourcing action team1.Opportunity costs2.Out-of-pocket costs3.Sunk costs4.Differentialand incrementalcosts5.Marginal and average costsD.Costs and benefits of informationVI.Costs in the Service IndustryA.Product and period costs
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 14 preview imageChapter02-Basic Cost Management Concepts2-3B.Variable and fixed costsC.Controllable and uncontrollable costsD.Opportunity, out-of-pocket,and sunk costsE.Differential, marginal,and average costs
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 15 preview imageChapter02-Basic Cost Management Concepts2-4Key Lecture ConceptsI.What Do We Mean by a Cost?•Acostis the sacrifice made to achieve a particular purpose.•There are different costs for different purposes, with costs that areappropriate for one use being totally inappropriate for others (e.g., acost that is used to determine inventory valuation may be irrelevant indeciding whether or not to manufacture that same product).•Anexpenseis defined as the cost incurred when an asset is used up orsold for the purpose of generating revenue. The terms"product cost"and"period cost"are used to describe the timing with which expensesare recognized.➢Product costsare the costs of goods manufactured or the cost ofgoods purchased for resale. These costs are inventoried untilthe goods are sold.➢Period costsare all other non-product costs in an organization(e.g., selling and administrative). Such costs are not inventoriedbut are expensed as time passes.II.Costs on Financial Statements•Product costs are shown as cost of goods sold on the income statementwhen goods are sold. Income statements of service enterprises lack acost-of-goods-sold section and instead revealafirm's operatingexpenses.•Product costs, housedon the balance sheetuntil sale,are found in threeinventory accounts:➢Raw materials—materialsthat await production➢Work in process—partiallycompleted production➢Finished goods—completedproduction that awaits sale
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 16 preview imageChapter02-Basic Cost Management Concepts2-5III.Manufacturing Operations and Manufacturing Costs•There are various types of production processes; for example:➢Job shop—low production volume, little standardization; one-of-a-kind products➢Batch—multiple products; low volume➢Assembly line—afew major products; higher volume➢Continuous flow—high volume; highly standardized commodityproducts•Direct materials—materials easily traced to a finished product (e.g.,the seat on a bicycle)•Direct labor—the wages of anyone who works directly on the product(e.g., the assembly-line wages of the bicycle manufacturer)•Manufacturing overhead—all other manufacturing costs such as:➢Indirect materials—materialsand supplies other than thoseclassified as direct materials,➢Indirect labor—personnelwho do not work directly on theproduct(e.g., manufacturing supervisors), and➢Other manufacturing costs not easily traceable to a finishedgood (insurance, property taxes, depreciation,utilities, andservice/support department costs).Overtime premiums andthe cost of idle time are also accounted for as overhead.➢Idle time–time that is not spent productively by an employeedue to such events as equipment breakdowns or new setups ofproduction runs.•Conversion cost(the cost to convert direct materials into finishedproduct): direct labor + manufacturing overhead•Prime cost:direct material + direct labor
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 17 preview imageChapter02-Basic Cost Management Concepts2-6IV.Manufacturing Cost Flows•Manufacturing costs (direct materials, direct labor, and manufacturingoverhead) are"put in process"and attached to work-in-processinventory. The goods are completed (finished goods), and the costs arethen passed along to cost of goods sold upon sale.•Cost of goods manufactured:Direct materials used + direct labor +manufacturing overhead + beginning work-in-process inventory-ending work-in-process inventory➢This amount is transferred from work-in-process inventory tofinished-goods inventory when goods are completed.•Product costs and cost of goods sold for a manufacturer:BeginningCost of GoodsEndingInventory,+Manufactured-Inventory,=Cost ofFinished Goodsto CompletionFinished GoodsGoodsSoldSupported byA schedule ofCurrentIncomethe prior year'sproduction costsbalance sheetstatementbalance sheet•Production-cost concepts are applicable to service businesses andnonprofit organizations. For example, the direct-materials concept canbe applied to the food consumed in a restaurant or the jet fuel used byan airline. Similarly, direct labor would be equivalent to the cooks in arestaurant and the flight crews of an airline.Cost ofGoodsSoldEndingFinishedGoodsCost ofGoodsManu.BeginningFinishedGoods
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 18 preview imageChapter02-Basic Cost Management Concepts2-7V.Basic Cost Management Concepts: Different Costs for Different Purposes•Acost driveris any event or activity that causes costs to be incurred.Cost driverexamples include labor hours in manual assembly workand machine hours in automated production settings.➢The higher thedegree ofcorrelation between a cost-poolincrease and the increase in its cost driver, the better the costmanagement information.•Variable and fixed costs➢Variable costsmove in direct proportion to a change in activity.For example, in the manufacture of bicycles, the total cost ofbicycle seats goes up in proportion to the number of bicyclesproduced. However, the cost per unit (i.e., per seat) remainsconstant.➢Fixed costsremain constant in total as the level of activitychanges. For instance, straight-line depreciation of a bicycleplant remains the same whether 100 bicycles or 1,000 bicyclesare produced. However, the depreciation cost per unitfluctuates because this constant total is spread over a smaller orgreater volume.•Direct and indirect costs➢An entity (e.g., a specific product, service, or department) towhich a cost is assigned is commonly known as acost object.➢Adirect costis one that can be easily traced to acost object.▪Ifa college department has been defined asthecostobject,professors'salaries andadministrative assistants'salaries are direct costs of the department (just asassembly workers'wages are direct costs of amanufacturing department).➢Anindirect costis a cost that cannot be easily traced to acostobject.▪For example, the costs of a university's controller,president, campus security,andgroundskeeper cannot bedirectly traceable to a specific department, as theseindividuals service the entire university. (Similarly, afactory guard's salary is not traceable to only one depart-ment and is, thus, considered indirect to all departments.)➢A cost management system strivesto trace costs to theobjects
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 19 preview imageChapter02-Basic Cost Management Concepts2-8that caused them so that managerscan isolate responsibility forspending and objectively evaluate operations.Teaching Tip:When discussing indirect costs, you may want to cite ahospital's medical and surgical supplies as an example. Such items donot appear to be a primary target for trimming; however, theseindirect costs often account fora sizable portionof a hospital'soperating costs. Understanding indirect costs has become morevaluable in a managed-care environment because it helps hospitalsnegotiate fixed-fee contracts.•Controllable and uncontrollable costs➢Controllable costs—costs over which a manager has influence(e.g., direct materials)➢Uncontrollable costs—costsover which a manager has noinfluence(e.g., the salary of a firm's CEO from the productionmanager's viewpoint)•Opportunity cost—thebenefit forgone by choosing an alternativecourse of action (e.g., the wages forgone when a student decides toattend collegefull-timerather thanbe employed)•Out-of-pocket cost—a costthat requires a cash outlay•Sunk cost—a cost incurred in the past that cannot be changed byfuture action (e.g., the cost of existing inventory or equipment)➢Such costs are not relevant for decision making.•Differential cost—the net difference in cost between two alternativecourses of action➢Incremental cost—the increase in cost from one alternative toanother•Marginal cost—theextra cost incurred when one additional unit isproduced•Average costper unit—total cost divided by the units of activity•Accountants must weigh the benefits of providing information againstthe costs of generating, communicating, and using that information.The goal is to use information effectively and avoid informationoverload.
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 20 preview imageChapter02-Basic Cost Management Concepts2-9VI.Costs in the Service Industry•The preceding costs are relevant in service providers as well as formanufacturing entities.
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 21 preview imageChapter02-Basic Cost Management Concepts2-10Teaching OverviewThe main purpose of Chapter 2 is to expand the way in which costs are defined andviewed. After completing a course in financial accounting, students are very muchgeared into thinking about functional costs (depreciation,utilities,and commissions)for an entire organization. While this is useful information to an outside creditor orinvestor, it is insufficient with respect to helping internal managers do their jobseffectively. Managers must also consider cost behavior, controllability, costsincurred by smaller segments, and so on. An initial reminder of these facts generallyopens a discussion of additional ways of viewing financial information. It isworthwhile to spend a few extra minutes in the area of cost behavior since it is sofundamental to later topics.Before discussing manufacturing costs, I ask for a show of hands from students whohave actually visited a manufacturing plant. Thetypical,small number of handsserves as a reminder that many students have little idea of what a factory"looks like"and does. Pictures andvideosare helpful in providing a context for the conceptsbeing discussed—even a field trip to a local manufacturer is a good idea. This is alsoan excellent time to point out that even if a student does not plan to work inproduction management, he or she may well work in accounting, finance, ormarketing for a company that makes a product. Therefore, being conversant in thelanguage and concepts of cost accounting will be useful. Accounting techniques inmanufacturing are frequently transferable to the service sector, and this fact shouldbe emphasized in class.In summary, Chapter 2 discusses the many ways that costs can be categorized.Chapter 3 then follows with a discussion of a system to track product costs andanswers the age-old question,“How much does this cost?”I recommend usingProblem 2-50(cost terminology and cost behavior) and Exercise 2-28(financialschedules and statements) as lecture demonstration problems.
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 22 preview imageChapter02-Basic Cost Management Concepts2-11Links to the TextHomework GridItem No.LearningObjectivesCompletionTime (min.)SpecialFeatures*Exercises:2-242, 5, 8202-251, 3, 6102-265102-275102-281, 3, 6252-29430C2-301, 8152-311, 105I2-321, 8, 10152-331, 9, 1052-341, 10102-351, 10102-361, 1015Problems:2-372, 5, 10252-381, 3, 5, 9152-393, 420C2-401, 2, 3102-411,9102-421, 5, 9202-431, 3, 5, 635S2-445, 6302-452, 540S2-465, 6, 8252-475, 6252-487, 8252-497, 8152-505, 8, 9202-511, 340W2-528, 9, 10252-537, 8152-541, 3, 9, 10202-557, 10102-564, 10252-578, 10152-587, 825
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 23 preview imageChapter02-Basic Cost Management Concepts2-12Cases:2-597, 8, 1030W, G2-601050W, E*W = Written responseE = Ethical issueG = Group workI = InternationalC = Internet useS = Spreadsheet
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 24 preview imageChapter 03-Product Costingand Cost AccumulationinaBatch Production Environment3-1CHAPTER 3PRODUCT COSTING AND COST ACCUMULATION IN ABATCH PRODUCTION ENVIRONMENTLearning Objectives1.Discuss the role of product and service costing in manufacturing andnonmanufacturing firms.2.Diagram and explain the flow of costs through the manufacturing accountsused in product costing.3.Distinguish between job-order costing and process costing.4.Compute a predetermined overhead rate, and explain its use in job-ordercosting for job-shop and batch-production environments.5.Prepare journal entries to record the costs of directmaterial, directlabor, andmanufacturing overhead in a job-order costing system.6.Prepare a schedule of cost of goods manufactured, a schedule of cost of goodssold, and an income statement for a manufacturer.7.Describe the two-stage allocation process used toassign manufacturingoverhead costs to production jobs.8.Describe the process of project costing used in service industry firms andnonprofit organizations.
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 25 preview imageChapter 03-Product Costingand Cost AccumulationinaBatch Production Environment3-2Chapter OverviewI.Product and Service CostingA.Use in financial accountingB.Use in managerial accountingC.Use in cost managementD.Use in reportingto interested organizationsII.Flow of Costs in Manufacturing FirmsA.Work-in-process inventoryB.Finished-goods inventoryC.Cost of goods soldIII.Types of Product-Costing SystemsA.Job-order costing systemsB.Process-costing systemsIV.Accumulating Costs in a Job-Order Costing SystemA.Job-cost recordB.Direct materials costsC.Direct laborcostsD.Manufacturing-overheadcosts1. Overhead application2. Predetermined overhead rate3. Applying overhead costsV.Illustration of Job-Order CostingA.Purchaseof materialB.Use ofdirectmaterialC.Use of indirect materialD.Use of direct laborE.Use of indirect laborF.Incurrence ofmanufacturing-overhead costsG.Application of manufacturing overheadH.Summary ofoverheadaccountingI.Sellingand administrative costsJ.Completionof a production jobK.SaleofgoodsL.Underapplied and overappliedoverheadM.Schedule of cost of goods manufacturedN.Schedule of cost of goods soldO.Posting journal entries to the ledger
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 26 preview imageChapter 03-Product Costingand Cost AccumulationinaBatch Production Environment3-3VI.Further Aspects of Overhead ApplicationA.Actual and normal costingB.Choosing the cost driverfor overheadapplicationC.Departmental overhead ratesVII.Two-stage cost allocationVIII.Project Costing: Job-Order Costingin Nonmanufacturing OrganizationsIX.Changing Technology in Manufacturing OperationsA.EDI and XMLB.Use of bar codes and RFID system
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 27 preview imageChapter 03-Product Costingand Cost AccumulationinaBatch Production Environment3-4Key Lecture ConceptsI.Product and Service Costing•Aproduct-costingcosting systemaccumulates the total cost of makingproducts and facilitates the calculation of a per-unit cost. Applicationsexist in:➢Financial accounting: Valuation of ending inventory on thebalance sheet and determination of cost of goods soldfortheincome statement➢Managerial accounting: Planning, cost control, and decisionmaking➢Cost management: Cost control and cost reduction➢Reporting to interested organizations:Audience includes stateregulatory agencies, insurance companies,hospitals,and thegovernment.•Managers of nonmanufacturing organizations need product-costinformation as well. For example, product costs are used by account-ing firms, which set a contract price for audit jobs, and by hospitals,which are reimbursed on a per-case basis under Medicare.II.Flow of Costs in Manufacturing Firms•As production takes place, manufacturing costs are tracked in theWork-in-Process Inventory account. Every product is made up of threecost components: direct materials, direct labor, and manufacturingoverhead.•After products are completed, the corresponding cost leaves the Work-in-Process account and is debited to the Finished-Goods account. (Amerchandising firm buys its goods already completed and directlydebits the items'cost to Merchandise Inventory.)•When units are sold, the Finished-Goods Inventory account is creditedand Cost of Goods Sold is debited.
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 28 preview imageChapter 03-Product Costingand Cost AccumulationinaBatch Production Environment3-5III.Types of Product-Costing Systems•A product-costing system must be adapted to match the environmentin which it operates.•Ajob-order costing systemis used in an industry where products aremade individually, or in relatively small batches, and one product orbatch is readily distinguishable from the other.➢Candidates for job-costing systems would becustomhomebuilding,custom printing, custom furnitureconstruction,legal cases, medical cases, audits, and research projects.•Aprocess-costing systemis employed in an environment at the otherend of the continuum: the mass production of like units. Users mightinclude manufacturers of chemicals, gasoline, and microchips. Thistopic is discussed fully in Chapter 4.
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 29 preview imageChapter 03-Product Costingand Cost AccumulationinaBatch Production Environment3-6IV.Accumulating Costs in a Job-Order Costing System•Ajob-cost recordis used to accumulate the actual direct materials,actual direct labor, and applied manufacturing overhead costs for eachjob.The recording of costs on this record and in the general ledger istriggered by varioussource documents.•Material requisition formsauthorize the transfer of direct materialsfrom the warehouse to production. In many firms, the requisitions arebased on abill of materialsthat lists all of the materials (e.g., parts)needed.•Supply chain—the flow of all goods, services, and information intoand out of the organization. The supply chain often has ramificationsfor materials, as manufacturers work with vendors to achieveimproved delivery schedules and reductions in material cost.•Timerecordsare used togatherthe amount of direct labor worked ona specific job.•Manufacturing overhead is entered on the job-cost record in the formof applied (i.e., estimated) overhead. Source documents, such asinvoices for factory insurance and schedules for factorydepreciation,trigger a general-ledger entry that debits the Manufacturing Overheadaccount.•Overhead accounting involves a number of steps. Chapter 3 focuses onthe final step: the application of overhead to jobs and products.➢Although overhead cannot be directly traced to the product, theuse of an application rate should allocate an equitable amount ofcost to each job (known asoverhead application).➢Step 1:Set apredetermined overhead rateat the beginning ofthe accounting period. This is done by dividing the period'sestimated (budgeted)overhead by the period's estimatednumber of cost-driver units.➢Step 2:Use the predetermined overhead rate to apply anequitable portion of overhead to each job. As the actual numberof cost-driver units used on a job becomes known, it ismultiplied by the predetermined overhead rate.➢Actual overheadcosts incurred during the year are debited tothe Manufacturing Overhead control account. In contrast,applied overheadis debited to Work-in-Process Inventory and
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 30 preview imageChapter 03-Product Costingand Cost AccumulationinaBatch Production Environment3-7credited to Manufacturing Overhead.➢The year-end difference between actual and applied amounts isknown asover-or underappliedoverhead.This figure isadjusted in the process of closing the Manufacturing Overheadaccount to zero by either:▪Charging or crediting the amount to cost of goods sold.This approach is acceptable if the over-orunderapplication is small or if most of the products madeduring the period have been sold.▪Proratingthe amount among work in process, finishedgoods, and cost of goods sold.Teaching Tip:Emphasize that under-and overapplied overheadis the differencebetween actual and applied overhead, not actual and budgeted overhead. Thebudgeted figure is used solely in the determination of the predetermined rate.
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Solution Manual For Managerial Accounting: Creating Value in a Dynamic Business Environment, 10th Edition - Page 31 preview imageChapter 03-Product Costingand Cost AccumulationinaBatch Production Environment3-8V.Illustration of Job-Order Costing•As noted earlier, the Work-in-Process Inventory account containscharges for direct materials used, direct labor, andappliedmanufacturing overhead.•Period costs are expensed and not charged to ManufacturingOverhead.•A sale requires two journal entries: one to record the sales revenue andanother to transfer the goods'cost from Finished-Goods Inventory toCost of Goods Sold.Teaching Tip:Although the text illustration appears relatively complicated, it issimply presenting the details that accompany the flow of goods (and costs) fromwork in process, to finished goods, to cost of goods sold.•Theschedule of cost of goods manufactureddetails the activity in theWork-in-Process account (beginning balance, direct materials used,direct labor, applied overhead, and ending balance).•Theschedule of cost of goods solddetails the activity in the Finished-Goods Inventory account. It is similar to the cost-of-goods-soldschedule as shown in financial accounting courses for merchandisingcompanies, except the"purchases"amount is replaced with cost ofgoods manufactured.
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Managerial Accounting: Creating Val...

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