Solution Manual for jh jh
Horngren's Managerial Chapters Accounting, 7th Edition by Tracie
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Chapter 1-11
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Chapter 1 jh
Introduction to Managerial Accounting jh jh jh
Review Questions jh
1. The primary purpose of managerial accounting is to provide information to help managers
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plan,direct, control, and make decisions.
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2. Financial accounting and managerial accounting differ on the following 6 dimensions: (1)
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primaryusers, (2) purpose of information, (3) focus and time dimension of the information, (4) rules
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and restrictions, (5) scope of information, and (6) behavioral.
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3. Line positions are directly involved in providing goods or services to customers. Staff
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positionssupport line positions.
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4. Planning means choosing goals and deciding how to achieve them. Directing involves running the day-
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to-day operations of a business. Controlling is the process of monitoring operations and keepingthe
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company on track.
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5. The four IMA standards of ethical practice and a description of each follow.
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I. Competence.
Maintain an appropriate level of professional leadership and expertise by jh jh jh jh jh jh jh jh jh
enhancingknowledge and skills.
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Perform professional duties in accordance with relevant laws, regulations, and jh jh jh jh jh jh jh jh jh
technicalstandards.
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Provide decision support information and recommendations that are accurate, clear,
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concise,and timely.
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Recognise and help mange risk. jh jh jh jh
II. Confidentiality.
Keep information confidential except when disclosure is authorized or legally required.
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Inform all relevant parties regarding appropriate use of confidential information. Monitor
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toensure compliance.
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Refrain from using confidential information for unethical or illegal advantage.
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III. Integrity.
Mitigate actual conflicts of interest. Regularly communicate with business associates to
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avoidapparent conflicts of interest. Advise all parties of any potential conflicts.
jh jh jh jh jh jh jh jh jh jh jh jh jh
Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
jh jh jh jh jh jh jh jh jh jh jh jh
Abstain from engaging in or supporting any activity that might discredit the profession.
jh jh jh jh jh jh jh jh jh jh jh jh
© 2021 Pearson Education, Inc.
jh jh jh jh
1-1
, Contribute to a positive ethical culture and place integrity of the profession above
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personalinterest.
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5, cont.
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IV. Credibility.
Communicate information fairly and objectively. jh jh jh jh
Provide all relevant information that could reasonably be expected to influence an jh jh jh jh jh jh jh jh jh jh jh
intendeduser’s understanding of the reports, analyses, or recommendations.
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Report any delays or deficiencies in information, timeliness, processing, or internal controlsin
jh jh jh jh jh jh jh jh jh jh jh jh
conformance with organization policy and/or applicable law.
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Communicate any professional limitations or other constraints that would preclude responsi- jh jh jh jh jh jh jh jh jh jh
ble judgment or successful performance of an activity.
jh jh jh jh jh jh jh jh
6. Service companies sell time, skills, and knowledge. Examples of service companies include
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phoneservice companies, banks, cleaning service companies, accounting firms, law firms, medical
jh jh jh jh jh jh jh jh jh jh jh jh
physicians, and online auction services.
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7. Merchandising companies resell products they buy from suppliers. Merchandisers keep an inventoryof
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products, and managers are accountable for the purchasing, storage, and sale of the products. Examples
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of merchandising companies include toy stores, grocery stores, and clothing stores.
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8. Merchandising companies resell products they previously bought from suppliers, whereas jh jh jh jh jh jh jh jh jh
manufacturing companies use labor, equipment, supplies, and facilities to convert raw materials
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intonew finished products. In contrast to merchandising companies, manufacturing companies have a
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broad range of production activities that require tracking costs on three kinds of inventory.
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9. The three inventory accounts used by manufacturing companies are Raw Materials Inventory, Work-in-
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Process Inventory, and Finished Goods Inventory.
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Raw Materials Inventory includes materials used to manufacture a product. Work-in-
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ProcessInventory includes goods that have been started in the manufacturing process but are not
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yet complete. Finished Goods Inventory includes completed goods that have not yet been sold.
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10. A direct cost is a cost that can be easily and cost-effectively traced to a cost object (which is anything
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for which managers want a separate measurement of cost). An indirect cost is a cost thatcannot be
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easily or cost-effectively traced to a cost object.
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11. The three manufacturing costs for a manufacturing company are direct materials, direct labor, and
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manufacturing overhead. Direct materials are materials that become a physical part of a finished
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product and whose costs are easily traceable to the finished product. Direct labor is the labor cost
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ofthe employees who convert materials into finished products. Manufacturing overhead includes all
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© 2021 Pearson Education, Inc.
jh jh jh jh
1-2
, manufacturing costs except direct materials and direct labor, such as indirect materials, jh jh jh jh jh jh jh jh jh jh jh
indirectlabor, factory depreciation, factory rent, and factory property taxes.
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12. Examples of manufacturing overhead include costs of indirect materials, indirect labor, repair
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andmaintenance in factory, factory utilities, factory rent, factory insurance, factory property taxes,
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manufacturing plant managers’ salaries, and depreciation on manufacturing buildings and
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equipment.
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13. Prime costs are direct materials plus direct labor. Conversion costs are direct labor plus
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manufacturing overhead. Note that direct labor is classified as both a prime cost and a
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conversioncost.
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14. Product costs are the cost of purchasing or making a product. These costs are recorded as an
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asset and not expensed until the product is sold. Product costs include direct materials, direct labor,
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andmanufacturing overhead.
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15. Period costs are non-manufacturing costs that are expensed in the same accounting period in
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whichthey are incurred, whereas product costs are recorded as an asset and not expensed until the
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accounting period in which the product is sold.
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16. Cost of Goods Manufactured is calculated as Beginning Work-in-Process Inventory +
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TotalManufacturing Costs Incurred during the Year – Ending Work-in-Process Inventory.
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TotalManufacturing Costs Incurred during the Year = Direct Materials Used + Direct Labor
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+ Manufacturing Overhead.
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17. For a manufacturing company, the activity in the Finished Goods Inventory account provides
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theinformation for determining Cost of Goods Sold. A manufacturing company calculates Cost of
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Goods Sold as Beginning Finished Goods Inventory + Cost of Goods Manufactured – Ending
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Finished Good Inventory. In addition, a manufacturing company must track costs from Raw
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Materials Inventory and Work-in-Process Inventory in order to compute Cost of Goods
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Manufactured used in the previous equation.
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For a merchandising company, the activity in the Merchandise Inventory account provides the
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information for determining Cost of Goods Sold. A merchandising company calculates Cost of Goods
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Sold as Beginning Merchandise Inventory + Purchases and Freight In – Ending
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MerchandiseInventory.
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18. A manufacturing company calculates unit product cost as Cost of Goods Manufactured /
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Totalnumber of units produced.
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19. A service company calculates unit cost per service as Total operating costs / Total number
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ofservices provided.
jh jh jh
© 2021 Pearson Education, Inc.
jh jh jh jh
1-3
, 20. A merchandising company calculates unit cost per item as Total cost of goods sold / Total number
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ofitems sold.
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Short Exercises jh
S-M:1-1
a. FA
b. MA
c. MA
d. FA
e. FA
S-M:1-2
a. Confidentiality
b. Integrity
c. Competence (skipping the session); jh jh jh j h Integrity (company-paid conference)
jh jh
d. Competence
e. Credibility; Integrity j h
S-M:1-3
a. 2
b. 4
c. 1
d. 5
e. 4
f. 5
g. 3
S-M:1-4
Glue for frames
jh jh $ 250
Plant depreciation
jh 7,500
Plant foreman’s salary
jh jh 3,500
Plant janitor’s wages
jh jh 1,300
Oil for manufacturing equipment
jh jh jh jh 150 jh jh
Total manufacturing overhead
jh jh jh $ 12,700
jh jhjh
© 2021 Pearson Education, Inc.
jh jh jh jh
1-4
Horngren's Managerial Chapters Accounting, 7th Edition by Tracie
jh jh jh jh jh jh jh
Chapter 1-11
jh
Chapter 1 jh
Introduction to Managerial Accounting jh jh jh
Review Questions jh
1. The primary purpose of managerial accounting is to provide information to help managers
jh jh jh jh jh jh jh jh jh jh jh jh
plan,direct, control, and make decisions.
jh jh jh jh jh jh
2. Financial accounting and managerial accounting differ on the following 6 dimensions: (1)
jh jh jh jh jh jh jh jh jh jh jh
primaryusers, (2) purpose of information, (3) focus and time dimension of the information, (4) rules
jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh
and restrictions, (5) scope of information, and (6) behavioral.
jh jh jh jh jh jh jh jh jh
3. Line positions are directly involved in providing goods or services to customers. Staff
jh jh jh jh jh jh jh jh jh jh jh jh
positionssupport line positions.
jh jh jh jh
4. Planning means choosing goals and deciding how to achieve them. Directing involves running the day-
jh jh jh jh jh jh jh jh jh jh jh jh jh jh
to-day operations of a business. Controlling is the process of monitoring operations and keepingthe
jh jh jh jh jh jh jh jh jh jh jh jh jh jh
company on track.
jh jh jh
5. The four IMA standards of ethical practice and a description of each follow.
jh jh jh jh jh jh jh jh jh jh jh jh
I. Competence.
Maintain an appropriate level of professional leadership and expertise by jh jh jh jh jh jh jh jh jh
enhancingknowledge and skills.
jh jh jh jh
Perform professional duties in accordance with relevant laws, regulations, and jh jh jh jh jh jh jh jh jh
technicalstandards.
jh jh
Provide decision support information and recommendations that are accurate, clear,
jh jh jh jh jh jh jh jh jh
concise,and timely.
jh jh jh
Recognise and help mange risk. jh jh jh jh
II. Confidentiality.
Keep information confidential except when disclosure is authorized or legally required.
jh jh jh jh jh jh jh jh jh jh
Inform all relevant parties regarding appropriate use of confidential information. Monitor
jh jh jh jh jh jh jh jh jh j h
toensure compliance.
jh jh jh
Refrain from using confidential information for unethical or illegal advantage.
jh jh jh jh jh jh jh jh jh
III. Integrity.
Mitigate actual conflicts of interest. Regularly communicate with business associates to
jh jh jh jh jh jh jh jh jh jh
avoidapparent conflicts of interest. Advise all parties of any potential conflicts.
jh jh jh jh jh jh jh jh jh jh jh jh jh
Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
jh jh jh jh jh jh jh jh jh jh jh jh
Abstain from engaging in or supporting any activity that might discredit the profession.
jh jh jh jh jh jh jh jh jh jh jh jh
© 2021 Pearson Education, Inc.
jh jh jh jh
1-1
, Contribute to a positive ethical culture and place integrity of the profession above
jh jh jh jh jh jh jh jh jh jh jh jh
personalinterest.
jh jh
5, cont.
jh
IV. Credibility.
Communicate information fairly and objectively. jh jh jh jh
Provide all relevant information that could reasonably be expected to influence an jh jh jh jh jh jh jh jh jh jh jh
intendeduser’s understanding of the reports, analyses, or recommendations.
jh jh jh jh jh jh jh jh jh
Report any delays or deficiencies in information, timeliness, processing, or internal controlsin
jh jh jh jh jh jh jh jh jh jh jh jh
conformance with organization policy and/or applicable law.
jh jh jh jh jh jh jh
Communicate any professional limitations or other constraints that would preclude responsi- jh jh jh jh jh jh jh jh jh jh
ble judgment or successful performance of an activity.
jh jh jh jh jh jh jh jh
6. Service companies sell time, skills, and knowledge. Examples of service companies include
jh jh jh jh jh jh j h jh jh jh jh
phoneservice companies, banks, cleaning service companies, accounting firms, law firms, medical
jh jh jh jh jh jh jh jh jh jh jh jh
physicians, and online auction services.
jh jh jh jh jh
7. Merchandising companies resell products they buy from suppliers. Merchandisers keep an inventoryof
jh jh jh jh jh jh jh jh jh jh jh jh
products, and managers are accountable for the purchasing, storage, and sale of the products. Examples
jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh
of merchandising companies include toy stores, grocery stores, and clothing stores.
jh jh jh jh jh jh jh jh jh jh jh
8. Merchandising companies resell products they previously bought from suppliers, whereas jh jh jh jh jh jh jh jh jh
manufacturing companies use labor, equipment, supplies, and facilities to convert raw materials
jh jh jh jh jh jh jh jh jh jh jh jh
intonew finished products. In contrast to merchandising companies, manufacturing companies have a
jh jh jh jh jh jh jh jh jh jh jh jh jh
broad range of production activities that require tracking costs on three kinds of inventory.
jh jh jh jh jh jh jh jh jh jh jh jh jh jh
9. The three inventory accounts used by manufacturing companies are Raw Materials Inventory, Work-in-
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Process Inventory, and Finished Goods Inventory.
jh jh jh jh jh
Raw Materials Inventory includes materials used to manufacture a product. Work-in-
jh jh jh jh jh jh jh jh jh jh
ProcessInventory includes goods that have been started in the manufacturing process but are not
jh jh jh jh jh jh jh jh jh jh jh jh jh jh
yet complete. Finished Goods Inventory includes completed goods that have not yet been sold.
jh jh j h jh jh jh jh jh jh jh jh jh jh jh
10. A direct cost is a cost that can be easily and cost-effectively traced to a cost object (which is anything
jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh
for which managers want a separate measurement of cost). An indirect cost is a cost thatcannot be
jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh
easily or cost-effectively traced to a cost object.
jh jh jh jh jh jh jh jh
11. The three manufacturing costs for a manufacturing company are direct materials, direct labor, and
jh jh jh jh jh jh jh jh jh jh jh jh jh
manufacturing overhead. Direct materials are materials that become a physical part of a finished
jh jh jh jh jh jh jh jh jh jh jh jh jh jh
product and whose costs are easily traceable to the finished product. Direct labor is the labor cost
jh jh jh jh jh jh jh jh jh jh jh j h jh jh jh jh jh
ofthe employees who convert materials into finished products. Manufacturing overhead includes all
jh jh jh jh jh jh jh jh jh j h jh jh jh
© 2021 Pearson Education, Inc.
jh jh jh jh
1-2
, manufacturing costs except direct materials and direct labor, such as indirect materials, jh jh jh jh jh jh jh jh jh jh jh
indirectlabor, factory depreciation, factory rent, and factory property taxes.
jh jh jh jh jh jh jh jh jh jh
12. Examples of manufacturing overhead include costs of indirect materials, indirect labor, repair
jh jh jh jh jh jh jh jh jh jh jh
andmaintenance in factory, factory utilities, factory rent, factory insurance, factory property taxes,
jh jh jh jh jh jh jh jh jh jh jh jh jh
manufacturing plant managers’ salaries, and depreciation on manufacturing buildings and
jh jh jh jh jh jh jh jh jh jh
equipment.
jh
13. Prime costs are direct materials plus direct labor. Conversion costs are direct labor plus
jh jh jh jh jh jh jh jh jh jh jh jh jh
manufacturing overhead. Note that direct labor is classified as both a prime cost and a
jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh
conversioncost.
jh jh
14. Product costs are the cost of purchasing or making a product. These costs are recorded as an
jh jh jh jh jh jh jh jh jh jh j h jh jh jh jh jh
asset and not expensed until the product is sold. Product costs include direct materials, direct labor,
jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh
andmanufacturing overhead.
jh jh jh
15. Period costs are non-manufacturing costs that are expensed in the same accounting period in
jh jh jh jh jh jh jh jh jh jh jh jh jh
whichthey are incurred, whereas product costs are recorded as an asset and not expensed until the
jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh
accounting period in which the product is sold.
jh jh jh jh jh jh jh jh
16. Cost of Goods Manufactured is calculated as Beginning Work-in-Process Inventory +
jh jh jh jh jh jh jh jh jh jh
TotalManufacturing Costs Incurred during the Year – Ending Work-in-Process Inventory.
jh jh jh jh jh jh jh jh jh jh jh
TotalManufacturing Costs Incurred during the Year = Direct Materials Used + Direct Labor
jh jh jh jh jh jh jh jh jh jh jh jh jh jh
+ Manufacturing Overhead.
jh jh jh
17. For a manufacturing company, the activity in the Finished Goods Inventory account provides
jh jh jh jh jh jh jh jh jh jh jh jh
theinformation for determining Cost of Goods Sold. A manufacturing company calculates Cost of
jh jh jh jh jh jh jh jh jh jh jh jh jh jh
Goods Sold as Beginning Finished Goods Inventory + Cost of Goods Manufactured – Ending
jh jh jh jh jh jh jh jh jh jh jh jh jh jh
Finished Good Inventory. In addition, a manufacturing company must track costs from Raw
jh jh jh jh jh jh jh jh jh jh jh jh jh
Materials Inventory and Work-in-Process Inventory in order to compute Cost of Goods
jh jh jh jh jh jh jh jh jh jh jh jh
Manufactured used in the previous equation.
jh jh jh jh jh jh
For a merchandising company, the activity in the Merchandise Inventory account provides the
jh jh jh jh jh jh jh jh jh jh jh jh
information for determining Cost of Goods Sold. A merchandising company calculates Cost of Goods
jh jh jh jh jh jh jh jh jh jh jh jh jh jh
Sold as Beginning Merchandise Inventory + Purchases and Freight In – Ending
jh jh jh jh jh jh jh jh jh jh jh jh
MerchandiseInventory.
jh jh
18. A manufacturing company calculates unit product cost as Cost of Goods Manufactured /
jh jh jh jh jh jh jh jh jh jh jh jh
Totalnumber of units produced.
jh jh jh jh jh
19. A service company calculates unit cost per service as Total operating costs / Total number
jh jh jh jh jh jh jh jh jh jh jh jh jh jh
ofservices provided.
jh jh jh
© 2021 Pearson Education, Inc.
jh jh jh jh
1-3
, 20. A merchandising company calculates unit cost per item as Total cost of goods sold / Total number
jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh jh
ofitems sold.
jh jh jh
Short Exercises jh
S-M:1-1
a. FA
b. MA
c. MA
d. FA
e. FA
S-M:1-2
a. Confidentiality
b. Integrity
c. Competence (skipping the session); jh jh jh j h Integrity (company-paid conference)
jh jh
d. Competence
e. Credibility; Integrity j h
S-M:1-3
a. 2
b. 4
c. 1
d. 5
e. 4
f. 5
g. 3
S-M:1-4
Glue for frames
jh jh $ 250
Plant depreciation
jh 7,500
Plant foreman’s salary
jh jh 3,500
Plant janitor’s wages
jh jh 1,300
Oil for manufacturing equipment
jh jh jh jh 150 jh jh
Total manufacturing overhead
jh jh jh $ 12,700
jh jhjh
© 2021 Pearson Education, Inc.
jh jh jh jh
1-4
