Managerial Accounting

CHAPTER 1 Managerial Accounting ASSIGNMENT CLASSIFICATION TABLE Study Objectives Self-Study Questions Do It! Review Exercises A Problems B Problems * 1. Explain the distinguishing features of managerial accounting. 1, 6, 7, 8 1 3, 7, 8 * 2. Identify the three broad functions of management and the role of management accountants in an organizational structure. 3 1 5, 6 * 3. Explain the importance of business ethics. 2, 10 1 4 * 4. Identify changes and trends in managerial accounting. 4, 5, 9 2 9 Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 1-1 BLOOM’S TAXONOMY TABLE © 2015 For Instructor Use Only 1-2 Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems Study Objective Knowledge Comprehension Application Analysis Synthesis Evaluation * 1. Explain the distinguishing features of managerial accounting. D-1, E-8 E-3, E-7 * 2. Identify the three functions of management and the role of management accountants in an organizational structure. D-1, E-5, E-6 * 3. Explain the importance of business ethics. D-1, E-4 * 4. Identify changes trends in managerial accounting. D-2, E-9 Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO DO IT! REVIEW D1-1 1. False. Preparation of budgets is part of managerial accounting. 2. False. Financial accounting reports pertain to the entity as a whole and are highly aggregated. It is managerial accounting reports that pertain to subunits of the business and are very detailed. 3. False. Financial accounting must adhere to Generally Accepted Accounting Principles and are subject to an audit by chartered accountants. 4. True. 5. True. 6. True. D1-2 1. (f) Just-in-time (JIT) inventory 2. (a) Activity-based costing 3. (c) Total quality management (TQM) 4. (d) Research and development, and product design 5. (e) Service industries 6. (b) Balanced scorecard Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 1-3 Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO EXERCISES E1-3 Financial Accounting Managerial Accounting Primary users External users Internal users Types of reports Financial statements Internal reports Frequency of reports Monthly, quarterly and annually As frequently as needed Purpose of reports General-purpose Special-purpose information for specific decisions Content of reports Generally accepted accounting principles Relevance to decisions Verification Annual audit by CPA (chartered professional accountant) No independent audits E1-4 The four specific standards are: (1) Competence (2) Confidentiality (3) Integrity (4) Objectivity E1-5 (a) (1) Planning. (b) (2) Directing. (c) (3) Controlling. Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 1-4

COMM | 305 | Managerial Accounting | lecture notes | CHAPTER 1 Managerial Accountin

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 4-19 (a) Work in process, May 1 400 Started into production 1,200 Total units to be accounted for 1,600 Less: Transferred out 1,200 Work in process, May 31 400 (b) Equivalent Units Materials Conversion Costs Units transferred out Work in process, May 31 400 × 100% 400 × 40% 1,200 400 1,600 1,200 160 1,360 Direct Materials Conversion Costs Work in process, May 1 Costs added Total materials cost $2,020 6,460 $8,480 $1,550 4,026 $5,576 $8,480 ÷ 1,600 = $5.30 per unit material cost (c) $5,576 ÷ 1,360 = $4.10 per unit conversion cost (d) Transferred out: 1,200 × $9.40 = $11,280; Per unit cost = $5.30 + $4.10 as calculated in (b) and (c) (e) Work in process, May 31 Materials (400 × $5.30) $2,120 Conversion costs (160 × $4.10) 656 $2,776 ($3,570 + $6,460 + $2,400 + $1,626) less $11,280 = $2,776 ____________________________________________________________________________________________________________________ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 4-16 Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 4-20 1. Raw Materials Inventory ........................................... 65,500 Accounts Payable ............................................. 65,500 2. Factory Labour .......................................................... 47,000 Wages Payable .................................................. 47,000 3. Manufacturing Overhead ......................................... 75,000 Cash ................................................................... 55,000 Accounts Payable ............................................. 20,000 4. Work in Process—Cutting ........................................ 14,700 Work in Process—Assembly ................................... 11,900 Raw Materials Inventory ................................... 26,600 5. Work in Process—Cutting ........................................ 27,000 Work in Process—Assembly ................................... 19,000 Factory Labour .................................................. 46,000 6. Work in Process—Cutting (1,700 × $22) ................. 37,400 Work in Process—Assembly (1,650 × $22) ............. 36,300 Manufacturing Overhead .................................. 73,700 7. Work in Process—Assembly ................................... 70,700 Work in Process—Cutting ................................ 70,700 8. Finished Goods Inventory ........................................ 140,000 Work in Process—Assembly ........................... 140,000 9. Cost of Goods Sold .................................................. 165,000 ____________________________________________________________________________________________________________________ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 4-17

COMM | 305 | Managerial Accounting | lecture notes | Managerial Accounting: Tools f

SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 7-1 The correct order is: 1. Identify the problem and assign responsibility. 2. Determine and evaluate possible courses of action. 3. Make decision. 4. Review the results of the decision. BRIEF EXERCISE 7-2 Alternative A Alternative B Net Income Increase (Decrease) Revenues Costs Net income $160,000 100,000 $ 60,000 $180,000 125,000 $ 55,000 ( $ 20,000 ) (25,000 ) ($ 5,000 ) Alternative A is better than Alternative B. BRIEF EXERCISE 7-3 Determine incremental difference between accepting and rejecting the order: Incremental revenue (40,000 units × ($48 × 75%) per unit) $1,440,000 Incremental cost: Variable cost (40,000 units × $34* per unit) $1,360,000 Selling cost (40,000 units × $3 per unit) 120,000 1,480,000 Incremental income (loss) ($40,000) *Variable cost per unit = $15 + $10 + ($12 × 75%) The special order should not be accepted, as it will create a $40,000 net loss for the company. _ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited . 7-5 BRIEF EXERCISE 7-4 Incremental revenue (40,000 units × $36 per unit) $1,440,000 Incremental cost: Variable cost (40,000 units × $34 per unit) $1,360,000 Selling cost (40,000 units × $3 per unit) 120,000 Opportunity cost [40,000 × ($48 – $34)] 560,000 2,040,000 Incremental income (loss) $(600,000 ) The special order should not be accepted without any extra capacity, as the company would lose $600,000. BRIEF EXERCISE 7-5 Per Unit Make Buy Net Income Increase (Decrease) Number of units 10,000 Variable manufacturing costs $4.50 $45,000 $45,000 Fixed manufacturing costs $3.00 30,000 $20,000 10,000 Purchase price $5.00 — 50,000 (50,000) Total annual cost $75,000 $70,000 $5,000 It would save the company $5,000 if they were to buy the part. _ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited . 7-6 BRIEF EXERCISE 7-6 Sell Process Further Net Income Increase (Decrease) Sales per unit $62.00 $70.00 $8.00 Cost per unit: Variable 36.00 43.00 (7.00) Cost per unit: Fixed 10.00 10.00 — Total per unit cost 46.00 53.00 (7.00) BRIEF EXERCISE 7-6 (Continued) Net Income per unit $16.00 $17.00 $1.00 The bookcases should be processed further because the incremental revenues exceed incremental costs by $1.00 per unit. BRIEF EXERCISE 7-7 The allocated joint costs are irrelevant to the sell or process further decisions. If AB1 is processed further, the company will earn incremental revenue of $60,000 ($150,000 – $90,000) and only incur incremental costs of $50,000. Therefore, the company should process AB1 further. If XY1 is processed further, the company will earn incremental revenue of $40,000 ($130,000 – $90,000) but will incur incremental costs of $50,000. Therefore, the company should sell XY1 rather than process it further. _ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited . 7-7

COMM | 305 | Managerial Accounting | lecture notes | SOLUTIONS TO BRIEF EXERCISES B

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO EXERCISES EXERCISE 11-17 1. True. 2. False. Budget reports are prepared as frequently as needed . 3. True. 4. True. 5. False. Budgetary control works best when a company has a formalized reporting system. 6. False. The primary recipients of the sales report are the sales manager and top management. 7. True. 8. True. 9. False. Top management’s reaction to unfavourable differences is often influenced by the materiality of the difference. 10. True. EXERCISE 11-18 (a) PARGO COMPANY Selling Expense Report For March By Month Year-to-Date Month Budget Actual Difference Budget Actual Difference January $30,000 $31,200 $1,200 U $ 30,000 $ 31,200 $1,200 U February $35,000 $34,525 $ 475 F $ 65,000 $ 65,725 $ 725 U March $40,000 $46,000 $ 6,000 U $105,000 $111,725 $6,725 U (b) The purpose of the Selling Expense Report is to help management control selling expenses. The primary recipient is the sales manager. (c) Most likely, when management scrutinized the results for January and February, they would determine that the difference was insignificant (4% in January and 1.4% in February), and require no action. When the March results are examined, however, the fact that the difference is 15% of budget would probably cause __________________________________________________________________________________ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 11-13 Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 11-18 (Continued) management to investigate further. As a result of their investigation, management would either take corrective action or modify the amounts of budgeted selling expense for future months to reflect changing conditions. EXERCISE 11-19 RANEY COMPANY Monthly Manufacturing Overhead Flexible Budget For the Year 2016 Activity level: DLH 7,000 8,000 9,000 10,000 Variable costs: Indirect labour ($0.70) $4,900 $5,600 $6,300 $7,000 Indirect materials ($0.50) 3,500 4,000 4,500 5,000 Utilities ($0.40) 2,800 3,200 3,600 4,000 Total variable costs 11,200 12,800 14,400 16,000 Fixed costs: Supervision 4,000 4,000 4,000 4,000 Depreciation 1,500 1,500 1,500 1,500 Property taxes 800 800 800 800 Total fixed costs $6,300 $6,300 $6,300 $6,300 Total costs $17,500 $19,100 $20,70 0 $22,30 0 EXERCISE 11-20 (a) RANEY COMPANY Manufacturing Overhead Flexible Budget Report For the Month Ended July 31, 2016 Favourable F Unfavourable U Budget Actual Difference Direct labour hours 9,000 9,000 Variable costs Indirect labour ($0.70) $6,300 $6,100 $200 F Indirect materials ($0.50) 4,500 4,300 200 F Utilities ($0.40) 3,600 3,200 400 F Total variable costs 14,400 13,600 800 F __________________________________________________________________________________ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 11-14

ASSIGNMENT CHARACTERISTICS TABLE (Continued) Problem Number Description Difficulty Level Time Allotted (min.) 46B Analyze manufacturing accounts and determine missing amounts. Challenging 30-40 47B Calculate job costs and inventories, and prepare an income statement for a service organization. Moderate 30-40 __________________________________________________________________________________________________________________________ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 3-3 __________________________________________________________________________________________________________________________ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 3-4 Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems Study Objective Knowledge Comprehension Application Analysis Synthesis Evaluation 1. Explain the characteristics and purposes of cost accounting. BE-1 2. Describe the flow of costs in a job-order cost accounting system. BE-3, E17, E18, E24, E25, E27, P31A, P32A, P39B, P40B BE-2, E19, E20, E22, P38A, P42B, P46B 3. Use a job cost sheet to assign costs to work in process. BE-4, BE-5, BE-6, D13, E17, E18, E24, E26, E28, P31A, P32A, P39B, P40B, P44B, P47B E19, E22, P33A, P35A, P38A, P42B, P46B 4. Demonstrate how to determine and use the predetermined overhead rate. BE-7, BE-8, D14, E18, E21, E23, E24, E27, E28, E29, P30A, P31A, P32A, P36A, P39B, P40B, P41B, P44B, P45B E19, E22, P33A, P38A, P42B, P46B 5. Prepare entries for manufacturing and service jobs completed and sold. BE-9, BE-10, D15, E18, E23, E25, E26, E27, P31A, P32A, P39B, P40B, P44B, P47B E19, E22, P33A, P38A, P42B, P46B 6. Distinguish between under- and over-applied manufacturing overhead.. BE-11, BE-12, D16, E21, E23, E28, E29, P31A, P34A, P36A, P37A, P39B, P40B, P43B, P44B, P45B, P47B E20, P38A, P46B © 2015 For Instructor Use Only 3-4 BLOOM’S TAXONOMY TABLE Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 3-1 (a) The two principal types of cost accounting systems are: (1) job-order cost system and (2) process cost system. Under a job-order cost system, costs are assigned to each job or batch of goods; at all times each job or batch of goods can be separately identified. A job-order cost system measures costs for each completed job, rather than for set time periods. Unit costs are determined by dividing the total cost of the job by the number of units produced. Under a process cost system, product-related costs are accumulated by or assigned to departments or processes for a set period of time. Job-order costing lends itself to specific, special-order manufacturing or servicing while process costing is better suited to similar, large- volume products and continuous process manufacturing. Unit costs in a process costing system are determined by dividing the total processing costs for a certain period of time by the number of units produced during that time. (b) A company may use both types of systems. For example, General Motors uses process costing for standard model cars and job-order costing for custom-made vehicles. __________________________________________________________________________________________________________________________ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 3-5

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