SOLUTION MANUAL Horngren's Accounting, 13th Edition Managerial by Tracie Miller-Nobles, Brenda Mattison, All Chapter 1-9 THE MANAGERIAL CHAPTERS 1. Introduction to Managerial Accounting 2. Job Order Costing 3. Process Costing 4. Cost-Volume-

SOLUTION MANUAL Horngren's Accounting, 13th Edition Managerial by Tracie Miller-Nobles, Brenda Mattison, All Chapter 1-9 THE MANAGERIAL CHAPTERS 1. Introduction to Managerial Accounting 2. Job Order Costing 3. Process Costing 4. Cost-Volume-Profit Analysis 5. Master Budgets 6. Flexible Budgets and Standard Cost Systems 7. Cost Allocation and Responsibility Accounting 8. Short-Term Business Decisions 9. Capital Investment Decisions Chapter 1 Introduction to Managerial Accounting Review Questions 1. The primary purpose of managerial accounting is to provide information to help managers plan, direct, control, and make decisions. 2. Financial accounting and managerial accounting differ on the following 6 dimensions: (1) primary users, (2) purpose of information, (3) focus and time dimension of the information, (4) rules and restrictions, (5) scope of information, and (6) behavioral. 3. Line positions are directly involved in providing goods or services to customers. Staff positions support line positions. 4. Planning means choosing goals and deciding how to achieve them. Directing involves running the day to-day operations of a business. Controlling is the process of monitoring operations and keeping the company on track. 5. The four IMA standards of ethical practice and a description of each follow. I. Competence. Maintain an appropriate level of professional leadership and expertise by enhancing knowledge and skills. Perform professional duties in accordance with relevant laws, regulations, and technical standards. Provide decision support information and recommendations that are accurate, clear, concise, and timely. Recognise and help mange risk. II. Confidentiality. Keep information confidential except when disclosure is authorized or legally required. Inform all relevant parties regarding appropriate use of confidential information. Monitor to ensure compliance. Refrain from using confidential information for unethical or illegal advantage. III. Integrity. Mitigate actual conflicts of interest. Regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts. Refrain from engaging in any conduct that would prejudice carrying out duties ethically. Abstain from engaging in or supporting any activity that might discredit the profession. Contribute to a positive ethical culture and place integrity of the profession above personal interest. 5, cont. IV. Credibility. Communicate information fairly and objectively. Provide all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, analyses, or recommendations. Report any delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law. Communicate any professional limitations or other constraints that would preclude responsi- ble judgment or successful performance of an activity. 6. Service companies sell time, skills, and knowledge. Examples of service companies include phone service companies, banks, cleaning service companies, accounting firms, law firms, medical physicians, and online auction services. 7. Merchandising companies resell products they buy from suppliers. Merchandisers keep an inventory of products, and managers are accountable for the purchasing, storage, and sale of the products. Examples of merchandising companies include toy stores, grocery stores, and clothing stores. 8. Merchandising companies resell products they previously bought from suppliers, whereas manufacturing companies use labor, equipment, supplies, and facilities to convert raw materials into new finished products. In contrast to merchandising companies, manufacturing companies have a broad range of production activities that require tracking costs on three kinds of inventory. 9. The three inventory accounts used by manufacturing companies are Raw Materials Inventory, Work- in Process Inventory, and Finished Goods Inventory. Raw Materials Inventory includes materials used to manufacture a product. Work-in-Process Inventory includes goods that have been started in the manufacturing process but are not yet complete. Finished Goods Inventory includes completed goods that have not yet been sold. 10. A direct cost is a cost that can be easily and cost-effectively traced to a cost object (which is anything for which managers want a separate measurement of cost). An indirect cost is a cost that cannot be easily or cost-effectively traced to a cost object. 11. The three manufacturing costs for a manufacturing company are direct materials, direct labor, and manufacturing overhead. Direct materials are materials that become a physical part of a finished product and whose costs are easily traceable to the finished product. Direct labor is the labor cost of the employees who convert materials into finished products. Manufacturing overhead includes all manufacturing costs except direct materials and direct labor, such as indirect materials, indirect labor, factory depreciation, factory rent, and factory property taxes. 12. Examples of manufacturing overhead include costs of indirect materials, indirect labor, repair and maintenance in factory, factory utilities, factory rent, factory insurance, factory property taxes, manufacturing plant managers’ salaries, and depreciation on manufacturing buildings and equipment. 13. Prime costs are direct materials plus direct labor. Conversion costs are direct labor plus manufacturing overhead. Note that direct labor is classified as both a prime cost and a conversion cost. 14. Product costs are the cost of purchasing or making a product. These costs are recorded as an asset and not expensed until the product is sold. Product costs include direct materials, direct labor, and manufacturing overhead. 15. Period costs are non-manufacturing costs that are expensed in the same accounting period in which they are incurred, whereas product costs are recorded as an asset and not expensed until the accounting period in which the product is sold. 16. Cost of Goods Manufactured is calculated as Beginning Work-in-Process Inventory + Total Manufacturing Costs Incurred during the Year – Ending Work-in-Process Inventory. Total Manufacturing Costs Incurred during the Year = Direct Materials Used + Direct Labor + Manufacturing Overhead. 17. For a manufacturing company, the activity in the Finished Goods Inventory account provides the information for determining Cost of Goods Sold. A manufacturing company calculates Cost of Goods Sold as Beginning Finished Goods Inventory + Cost of Goods Manufactured – Ending Finished Good Inventory. In addition, a manufacturing company must track costs from Raw Materials Inventory and Work-in-Process Inventory in order to compute Cost of Goods Manufactured used in the previous equation. For a merchandising company, the activity in the Merchandise Inventory account provides the information for determining Cost of Goods Sold. A merchandising company calculates Cost of Goods Sold as Beginning Merchandise Inventory + Purchases and Freight In – Ending Merchandise Inventory. 18. A manufacturing company calculates unit product cost as Cost of Goods Manufactured / Total number of units produced. 19. A service company calculates unit cost per service as Total operating costs / Total number of services provided. 20. A merchandising company calculates unit cost per item as Total cost of goods sold / Total number of items sold. Short Exercises 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) d. Competence e. Credibility; Integrity 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 $ 250 Plant depreciation 7,500 Plant foreman’s salary 3,500 Plant janitor’s wages 1,300 Oil for manufacturing equipment 150 Total manufacturing overhead $ 12,700 S-M:1-5 1-7 © 2021 Pearson Education, Inc. a. Period cost b. Product cost c. Product cost d. Period cost e. Product cost f. Period cost g. Product cost h. Product cost i. Period cost S-M:1-6 Beginning merchandise inventory $ 8,600 Purchases $ 47,000 Freight in 2,400 49,400 Cost of goods available for sale 58,000 Ending merchandise inventory (5,500) Cost of goods sold $ 52,500 S-M:1-7 Solutions: Calculations: (a) $13,200 $63,200 [b, below] – $50,000 (b) $63,200 $61,000 + $2,200 (c) $28,000 $40,000 – $12,000 (d) $200,800 $86,800 [f, below] + 114,000 (e) $60,000 $89,000 – $29,000 (f) $86,800 $89,000 – $2,200 (g) $30,000 $114,000 – $84,000 Order of calculations: Smith, Inc.: (b), (a), (c) Allen, Inc.: (e), (f), (d), and (g) S-M:1-8 1-8 © 2021 Pearson Education, Inc. Beginning Direct Materials $ 4,100 Purchases of Direct Materials $ 6,300 Freight In 400 6,700 Direct Materials Available for Use 10,800 Ending Direct Materials (1,300) Direct Materials Used $ 9,500 S-M:1-9 Beginning Work-in-Process Inventory $ 1,000 Direct Materials Used $ 12,000 Direct Labor 9,000 Manufacturing Overhead 21,000 Total Manufacturing Costs Incurred during the Year 42,000 Total Manufacturing Costs to Account For 43,000 Ending Work-in-Process Inventory (5,000) Cost of Goods Manufactured $ 38,000 S-M:1-10 Beginning Finished Goods Inventory $ 30,000 Cost of Goods Manufactured 165,000 Cost of Goods Available for Sale 195,000 Ending Finished Goods Inventory (10,000) Cost of Goods Sold $ 185,000 S-M:1-11 1. d. 2. c. 3. e. 4. a. 5. b. S-M:1-12 Cost of one haircut = Total operating costs / Total number of haircuts = [$950 + $548 + $190 + $60] / 190 haircuts = $1,748 / 190 haircuts = $9.20 per haircut Exercises E-M:1-13 a. Financial b. Creditors and Stockholders c. Controlling d. e. f. g. Managers Financial Managerial Planning E-M:1-14 Students’ responses will vary. Illustrative answers follow. Requirement 1 A new employee who has engaged in this behavior is unlikely to become a valued and trusted employee. This type of behavior is unethical, and Sue Peters should consider beginning the process to terminate the employee. Any company policies with respect to discipline and termination should be followed. As controller, Sue Peters probably hired Dale, and she is also responsible for the lack of controls that permitted a new employee to commit this theft. She will need to supervise Dale and subsequent bookkeepers more carefully. Requirement 2 Being a new employee, Sue Peters may want to discuss the situation with her immediate supervisor or the company’s president if appropriate. Unless Sue can obtain additional information, she may want to indicate to Dale that this behavior will not be tolerated in the future. Sue should establish better controls and closer supervision. E-M:1-15 Product Cost Period DM DL MOH Prime Conversion Selling Admin a. Metal used for rims X b. Sales salaries X c. Rent on factory X X X d. Wages of assembly workers X X e. Salary of production supervisor X X f. Depreciation on office equipment X g. Salary of CEO X h. Delivery expense X X E-M:1-16 Company A is a manufacturing company. Company B is a service company. Company C is a merchan- dising company. E-M:1-17 Company A (all amounts in millions): Net Sales Revenue $ 48 Cost of Goods Sold 23 Gross Profit Selling and Administrative Expenses: Selling Expenses Administrative Expenses Total Selling and Administrative Expenses 25 $ 4 7 11 Operating Income $ 14 Company B (all amounts in millions): Service Revenue Expenses: Wages Expense $ 12 Rent Expense 12 Total Expenses $ 65 24 Operating Income $ 41 © 2021 Pearson Education, Inc. 1 10 Company C (all amounts in millions): Net Sales Revenue $ 75 Cost of Goods Sold 25 Gross Profit 50 Selling and Administrative Expenses: Selling Expenses Administrative Expenses Total Selling and Administrative Expenses Operating Income E-M:1-18 Company A (all amounts in millions): Cash Accounts Receivable Raw Materials Inventory Work-in-Process Inventory $ 6 14 9 Finished Goods Inventory 10 Total current assets $ 45 Company B (all amounts in millions): Cash $ 34 Accounts Receivable 8 Total current assets $ 42 Company C (all amounts in millions): Cash Accounts Receivable $ 25 19 Merchandise Inventory 12 Total current assets $ 56 $ 8 4 12 $ 38 6 © 2021 Pearson Education, Inc. 1 11 E-M:1-19 (a) Total Manufacturing Costs to Account For $ 55,400 Total Manufacturing Costs Incurred during the Year (45,200) Beginning Work-in-Process Inventory $ 10,200 (b) Total Manufacturing Costs Incurred during the Year Direct Materials Used $ 45,200 (14,400) Direct Labor (10,300) Manufacturing Overhead $ 20,500 (c) Total Manufacturing Costs to Account For $ 55,400 Cost of Goods Manufactured (50,500) Ending Work-in-Process Inventory $ 4,900 (d) Direct Materials Used Direct Labor $ 35,900 20,100 Manufacturing Overhead 10,000 Total Manufacturing Costs Incurred during the Year $ 66,000 (e) Beginning Work-in-Process Inventory Total Manufacturing Costs Incurred during the Year [d, above] Total Manufacturing Costs to Account For (f) Total Manufacturing Costs to Account For [e, above] $ 40,800 66,000 $ 106,800 $ 106,800 Ending Work-in-Process Inventory (25,500)