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