Solution Manual for b b
Horngren's Managerial Chapters Accounting, 7th Edition by Tracie
b b b b b b b
Chapter1-11 b
Chapter 1 b
Introductionto ManagerialAccounting b b b
Review Questions b
1. The primary purpose of managerial accounting is to provide information to help managers plan,direct,
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control, and make decisions.
b b b b
2. Financial accounting and managerial accounting differ on the following 6 dimensions: (1) primaryusers, (2)
b b b b b b b b b b b b b b
purpose of information, (3) focus and time dimension of the information, (4) rules and restrictions, (5) scope
b b b b b b b b b b b b b b b b b
of information, and (6) behavioral.
b b b b b
3. Line positions are directly involved in providing goods or services to customers. Staff positionssupport
b b b b b b b b b b b b b b
line positions.
b b
4. Planning means choosing goals and deciding how to achieve them. Directing involves running the day-to-day
b b b b b b b b b b b b b b
operations of a business. Controlling is the process of monitoring operations and keepingthe companyon
b b b b b b b b b b b b b b b b
track.
b
5. The four IMA standards of ethical practice and a description of each follow.
b b b b b b b b b b b b
I. Competence.
Maintain an appropriate level of professional leadership and expertise by enhancing b b b b b b b b b b
knowledge and skills.
b b b
Perform professional duties in accordance with relevant laws, regulations, and technical b b b b b b b b b b
standards. b
Providedecision support information and recommendations that are accurate, clear, concise,and b b b b b b b b b b b
timely. b
Recognise and help mange risk. b b b b
II. Confidentiality.
Keep information confidential except when disclosure is authorized or legallyrequired.
b b b b b b b b b b
Inform all relevant parties regardingappropriate use of confidential information. Monitor toensure
b b b b b b b b b b b b
compliance. b
Refrain from usingconfidential information for unethical or illegal advantage. b b b b b b b b b
III. Integrity.
Mitigate actual conflicts of interest. Regularlycommunicate with business associates to avoidapparent b b b b b b b b b b b b
conflicts of interest. Advise all parties of anypotential conflicts.
b b b bb b b b b b b
Refrain from engagingin anyconduct that would prejudice carryingout duties ethically. b b b b b b b b b b b b
Abstain from engagingin or supporting anyactivitythat might discredit the profession. b b b b b b b b b b b b
© 2021 Pearson Education, Inc.
b b b b
1-1
, Contribute to a positive ethical culture and place integrityof the profession above personalinterest.
b b b b b b b b b b b b b b
5, cont.
b
IV. Credibility.
Communicate information fairlyand objectively. b b b b
Provide all relevant information that could reasonablybe expected to influence an intendeduser’s
b b b b b b b b b b b b b
understanding of the reports, analyses, or recommendations.
b b b b b b b
Report anydelays or deficiencies in information, timeliness, processing, or internal controlsin
b b b b b b b b b b b b
conformance with organization policyand/or applicable law.
b b b b b b b
Communicate any professional limitations or other constraints that would preclude responsi-ble b b b b b b b b b b b
judgment or successful performance of an activity.
b b b b b b b
6. Service companies sell time, skills, and knowledge. Examples of service companies include phoneservice
b b b b b b b b b b b b b
companies, banks, cleaning service companies, accounting firms, law firms, medical physicians, and online
b b b b b b b b b b b b b
auction services.
b b
7. Merchandising companies resell products they buy from suppliers. Merchandisers keep an inventoryof b b b b b b b b b b b b
products, and managers are accountable for the purchasing, storage, and sale of the products. Examples of
b b b b b b b b b b b b b b b b
merchandising companies include toy stores, grocerystores, and clothing stores.
b b b b b b b b b b
8. Merchandising companies resell products they previously bought from suppliers, whereas manufacturing
b b b b b b b b b b
companies use labor, equipment, supplies, and facilities to convert raw materials intonew finished products. In
b b b b b b b b b b b b b b b b
contrast to merchandising companies, manufacturing companies have a broad range of production activities
b b b b b b b b b b b b b
that require tracking costs on three kinds of inventory.
b b b b b b b b b
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.
b b b b b
Raw Materials Inventory includes materials used to manufacture a product. Work-in-ProcessInventory
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includes goods that have been started in the manufacturing process but are not yet complete. Finished
b b b b b b b b b b b b b b b b
Goods Inventoryincludes completed goods that have not yet been sold.
b b b b b b b b b b b
10. A direct cost is a cost that can be easily and cost-effectively traced to a cost object (which is anything for which
b b b b b b b b b b b b b b b b b b b b b
managers want a separate measurement of cost). An indirect cost is a cost thatcannot be easilyor cost-
b b b b b b b b b b b b b b b b b b b
effectivelytraced to a cost object. b b b b b
11. The three manufacturing costs for a manufacturing company are direct materials, direct labor, and
b b b b b b b b b b b b b
manufacturing overhead. Direct materials are materials that become a physical part of a finished product and
b b b b b b b b b b b b b b b b
whose costs are easilytraceable to the finished product. Direct labor is the labor cost ofthe employees who
b b b b b b b b b b b b b b b b b b b
convert materials into finished products. Manufacturingoverhead includes all
b b b b b b b b b
© 2021 Pearson Education, Inc.
b b b b
1-2
, manufacturing costs except direct materials and direct labor, such as indirect materials, indirectlabor, b b b b b b b b b b b b b
factorydepreciation, factoryrent, and factory propertytaxes.
b b b b b b b b
12. Examples of manufacturingoverhead include costs of indirect materials, indirect labor, repair and
b b b b b b b b b b b b
maintenance in factory, factory utilities, factory rent, factory insurance, factory property taxes,
b b b b b b b b b b b b
manufacturing plant managers’ salaries, and depreciation on manufacturing buildings and equipment.
b b b b b b b b b b b
13. Prime costs are direct materials plus direct labor. Conversion costs are direct labor plus manufacturing
b b b b b b b b b b b b b b
overhead. Note that direct labor is classified as both a prime cost and a conversioncost.
b b b b b b b b b b b b b b b b
14. Product costs are the cost of purchasing or making a product. These costs are recorded as an asset and not
b b b b b b b b b b b b b b b b b b b
expensed until the product is sold. Product costs include direct materials, direct labor, and manufacturing
b b b b b b b b b b b b b b b
overhead.
b
15. Period costs are non-manufacturing costs that are expensed in the same accounting period in whichthey are
b b b b b b b b b b b b b b b b
incurred, whereas product costs are recorded as an asset and not expensed until the accountingperiod in
b b b b b b b b b b b b b b b b b
which the product is sold.
b b b b b
16. Cost of Goods Manufactured is calculated as Beginning Work-in-Process Inventory + Total
b b b b b b b b b b b
Manufacturing Costs Incurred during the Year – Ending Work-in-Process Inventory. Total
b b b b b b b b b b b
Manufacturing Costs Incurred during the Year = Direct Materials Used + Direct Labor +
b b b b b b b b b b b b b b
Manufacturing Overhead.
b b
17. For a manufacturing company, the activityin the Finished Goods Inventory account provides the
b b b b b b b b b b b b b
information for determining Cost of Goods Sold. A manufacturing company calculates Cost of Goods
b b b b b b b b b b b b b b
Sold as Beginning Finished Goods Inventory + Cost of Goods Manufactured – Ending Finished Good
b b b b b b b b b b b b b b b
Inventory. In addition, a manufacturing company must track costs from Raw Materials Inventory and
b b b b b b b b b b b b b b
Work-in-Process Inventory in order to compute Cost of Goods Manufactured used in the previous
b b b b b b b b b b b b b b
equation.
b
For a merchandising company, the activity in the Merchandise Inventory account provides the information
b b b b b b b b b b b b b
for determining Cost of Goods Sold. A merchandising company calculates Cost of Goods Sold as Beginning
b b b b b b b b b b b b b b b b
Merchandise Inventory + Purchases and Freight In – Ending MerchandiseInventory.
b b b b b b b b b b b
18. A manufacturing companycalculates unit product cost as Cost of Goods Manufactured / Totalnumber
b b b b b b b b b b b b b b
of units produced.
b b b
19. A service company calculates unit cost per service as Total operating costs / Total number ofservices
b b b b b b b b b b b b b b b b
provided.
b
© 2021 Pearson Education, Inc.
b b b b
1-3
, 20. A merchandising company calculates unit cost per item as Total cost of goods sold / Total number ofitems sold.
b b b b b b b b b b b b b b b b b b b
Short Exercises b
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); Integrity(company-paid conference)
b b b b b b
d. Competence
e. Credibility; Integrity b
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
b b $ 250
Plant depreciation
b 7,500
Plant foreman’s salary
b b 3,500
Plant janitor’s wages
b b 1,300
Oil for manufacturing equipment
b b b b 150 bb
Total manufacturingoverhead
b b b $ 12,700
b bb
© 2021 Pearson Education, Inc.
b b b b
1-4
Horngren's Managerial Chapters Accounting, 7th Edition by Tracie
b b b b b b b
Chapter1-11 b
Chapter 1 b
Introductionto ManagerialAccounting b b b
Review Questions b
1. The primary purpose of managerial accounting is to provide information to help managers plan,direct,
b b b b b b b b b b b b b b
control, and make decisions.
b b b b
2. Financial accounting and managerial accounting differ on the following 6 dimensions: (1) primaryusers, (2)
b b b b b b b b b b b b b b
purpose of information, (3) focus and time dimension of the information, (4) rules and restrictions, (5) scope
b b b b b b b b b b b b b b b b b
of information, and (6) behavioral.
b b b b b
3. Line positions are directly involved in providing goods or services to customers. Staff positionssupport
b b b b b b b b b b b b b b
line positions.
b b
4. Planning means choosing goals and deciding how to achieve them. Directing involves running the day-to-day
b b b b b b b b b b b b b b
operations of a business. Controlling is the process of monitoring operations and keepingthe companyon
b b b b b b b b b b b b b b b b
track.
b
5. The four IMA standards of ethical practice and a description of each follow.
b b b b b b b b b b b b
I. Competence.
Maintain an appropriate level of professional leadership and expertise by enhancing b b b b b b b b b b
knowledge and skills.
b b b
Perform professional duties in accordance with relevant laws, regulations, and technical b b b b b b b b b b
standards. b
Providedecision support information and recommendations that are accurate, clear, concise,and b b b b b b b b b b b
timely. b
Recognise and help mange risk. b b b b
II. Confidentiality.
Keep information confidential except when disclosure is authorized or legallyrequired.
b b b b b b b b b b
Inform all relevant parties regardingappropriate use of confidential information. Monitor toensure
b b b b b b b b b b b b
compliance. b
Refrain from usingconfidential information for unethical or illegal advantage. b b b b b b b b b
III. Integrity.
Mitigate actual conflicts of interest. Regularlycommunicate with business associates to avoidapparent b b b b b b b b b b b b
conflicts of interest. Advise all parties of anypotential conflicts.
b b b bb b b b b b b
Refrain from engagingin anyconduct that would prejudice carryingout duties ethically. b b b b b b b b b b b b
Abstain from engagingin or supporting anyactivitythat might discredit the profession. b b b b b b b b b b b b
© 2021 Pearson Education, Inc.
b b b b
1-1
, Contribute to a positive ethical culture and place integrityof the profession above personalinterest.
b b b b b b b b b b b b b b
5, cont.
b
IV. Credibility.
Communicate information fairlyand objectively. b b b b
Provide all relevant information that could reasonablybe expected to influence an intendeduser’s
b b b b b b b b b b b b b
understanding of the reports, analyses, or recommendations.
b b b b b b b
Report anydelays or deficiencies in information, timeliness, processing, or internal controlsin
b b b b b b b b b b b b
conformance with organization policyand/or applicable law.
b b b b b b b
Communicate any professional limitations or other constraints that would preclude responsi-ble b b b b b b b b b b b
judgment or successful performance of an activity.
b b b b b b b
6. Service companies sell time, skills, and knowledge. Examples of service companies include phoneservice
b b b b b b b b b b b b b
companies, banks, cleaning service companies, accounting firms, law firms, medical physicians, and online
b b b b b b b b b b b b b
auction services.
b b
7. Merchandising companies resell products they buy from suppliers. Merchandisers keep an inventoryof b b b b b b b b b b b b
products, and managers are accountable for the purchasing, storage, and sale of the products. Examples of
b b b b b b b b b b b b b b b b
merchandising companies include toy stores, grocerystores, and clothing stores.
b b b b b b b b b b
8. Merchandising companies resell products they previously bought from suppliers, whereas manufacturing
b b b b b b b b b b
companies use labor, equipment, supplies, and facilities to convert raw materials intonew finished products. In
b b b b b b b b b b b b b b b b
contrast to merchandising companies, manufacturing companies have a broad range of production activities
b b b b b b b b b b b b b
that require tracking costs on three kinds of inventory.
b b b b b b b b b
9. The three inventory accounts used by manufacturing companies are Raw Materials Inventory, Work-in-
b b b b b b b b b b b b b
Process Inventory, and Finished Goods Inventory.
b b b b b
Raw Materials Inventory includes materials used to manufacture a product. Work-in-ProcessInventory
b b b b b b b b b b b
includes goods that have been started in the manufacturing process but are not yet complete. Finished
b b b b b b b b b b b b b b b b
Goods Inventoryincludes completed goods that have not yet been sold.
b b b b b b b b b b b
10. A direct cost is a cost that can be easily and cost-effectively traced to a cost object (which is anything for which
b b b b b b b b b b b b b b b b b b b b b
managers want a separate measurement of cost). An indirect cost is a cost thatcannot be easilyor cost-
b b b b b b b b b b b b b b b b b b b
effectivelytraced to a cost object. b b b b b
11. The three manufacturing costs for a manufacturing company are direct materials, direct labor, and
b b b b b b b b b b b b b
manufacturing overhead. Direct materials are materials that become a physical part of a finished product and
b b b b b b b b b b b b b b b b
whose costs are easilytraceable to the finished product. Direct labor is the labor cost ofthe employees who
b b b b b b b b b b b b b b b b b b b
convert materials into finished products. Manufacturingoverhead includes all
b b b b b b b b b
© 2021 Pearson Education, Inc.
b b b b
1-2
, manufacturing costs except direct materials and direct labor, such as indirect materials, indirectlabor, b b b b b b b b b b b b b
factorydepreciation, factoryrent, and factory propertytaxes.
b b b b b b b b
12. Examples of manufacturingoverhead include costs of indirect materials, indirect labor, repair and
b b b b b b b b b b b b
maintenance in factory, factory utilities, factory rent, factory insurance, factory property taxes,
b b b b b b b b b b b b
manufacturing plant managers’ salaries, and depreciation on manufacturing buildings and equipment.
b b b b b b b b b b b
13. Prime costs are direct materials plus direct labor. Conversion costs are direct labor plus manufacturing
b b b b b b b b b b b b b b
overhead. Note that direct labor is classified as both a prime cost and a conversioncost.
b b b b b b b b b b b b b b b b
14. Product costs are the cost of purchasing or making a product. These costs are recorded as an asset and not
b b b b b b b b b b b b b b b b b b b
expensed until the product is sold. Product costs include direct materials, direct labor, and manufacturing
b b b b b b b b b b b b b b b
overhead.
b
15. Period costs are non-manufacturing costs that are expensed in the same accounting period in whichthey are
b b b b b b b b b b b b b b b b
incurred, whereas product costs are recorded as an asset and not expensed until the accountingperiod in
b b b b b b b b b b b b b b b b b
which the product is sold.
b b b b b
16. Cost of Goods Manufactured is calculated as Beginning Work-in-Process Inventory + Total
b b b b b b b b b b b
Manufacturing Costs Incurred during the Year – Ending Work-in-Process Inventory. Total
b b b b b b b b b b b
Manufacturing Costs Incurred during the Year = Direct Materials Used + Direct Labor +
b b b b b b b b b b b b b b
Manufacturing Overhead.
b b
17. For a manufacturing company, the activityin the Finished Goods Inventory account provides the
b b b b b b b b b b b b b
information for determining Cost of Goods Sold. A manufacturing company calculates Cost of Goods
b b b b b b b b b b b b b b
Sold as Beginning Finished Goods Inventory + Cost of Goods Manufactured – Ending Finished Good
b b b b b b b b b b b b b b b
Inventory. In addition, a manufacturing company must track costs from Raw Materials Inventory and
b b b b b b b b b b b b b b
Work-in-Process Inventory in order to compute Cost of Goods Manufactured used in the previous
b b b b b b b b b b b b b b
equation.
b
For a merchandising company, the activity in the Merchandise Inventory account provides the information
b b b b b b b b b b b b b
for determining Cost of Goods Sold. A merchandising company calculates Cost of Goods Sold as Beginning
b b b b b b b b b b b b b b b b
Merchandise Inventory + Purchases and Freight In – Ending MerchandiseInventory.
b b b b b b b b b b b
18. A manufacturing companycalculates unit product cost as Cost of Goods Manufactured / Totalnumber
b b b b b b b b b b b b b b
of units produced.
b b b
19. A service company calculates unit cost per service as Total operating costs / Total number ofservices
b b b b b b b b b b b b b b b b
provided.
b
© 2021 Pearson Education, Inc.
b b b b
1-3
, 20. A merchandising company calculates unit cost per item as Total cost of goods sold / Total number ofitems sold.
b b b b b b b b b b b b b b b b b b b
Short Exercises b
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); Integrity(company-paid conference)
b b b b b b
d. Competence
e. Credibility; Integrity b
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
b b $ 250
Plant depreciation
b 7,500
Plant foreman’s salary
b b 3,500
Plant janitor’s wages
b b 1,300
Oil for manufacturing equipment
b b b b 150 bb
Total manufacturingoverhead
b b b $ 12,700
b bb
© 2021 Pearson Education, Inc.
b b b b
1-4
