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