Managerial Accounting 1 Chapter 4

In: Business and Management

Submitted By lonilonni
Words 938
Pages 4
Problem 5-37 (1)

Machine setups 5 setups x $2,000 = $10,000
Raw materials 10,000 pounds x $2.00 = 20,000
Hazardous materials 2,000 pounds x $5.00= 10,000
Inspections 10 inspections x $75.00= 750
Machine hours 500 machine hours x $10= 5,000
Total $45,750

(2) Overhead cost per box $45,750/1,000 = $45.75

(3) Single predetermined rate $625,000/20,000 = $31.25

(4a) Raw material 10,000 pounds x $2 = $20,000 Machine hours 500 machine hours x $10 = 5,000 Budgeted overhead 500 machine hours x $31.25 = 15,625 $40,625

(b) Per box of chemicals $40,625/1,000 = $40.63

(5) These two product costing systems result in such widely differing costs because of the inaccuracy of the traditional single volume based overhead rate. The use of machine hours in the pre-determined rate does not reflect the usage of other activities during production. I would recommend the activity based costing system because of the accuracy of costs for each product, and it results in much better control over overhead costs.


Problem 5-38 (1)

Machine setups 3 setups x $2,000 = $6,000
Raw material 900 pounds = 1,800
Hazardous material 300 pounds = 1,500
Inspections 3 inspections = 225
Machine hours 50 machine hours = 500
Total $10,025

$10,025/100 = $100.25 + $120 +$40 = $260.25


Problem 5-35 (1)

Type A predetermined overhead rate:
Direct material cost (8,000 x $35) = $280,000
Direct labor cost (8,000x $20) = 160,000
Manufacturing overhead (16,000 x $800) = 1,280,000 $1,720,000
Total cost per unit ($1,720,000/8,000) = $215

Type B predetermined overhead rate:
Direct material cost (15,000 x $60) = $900,000
Direct labor cost (15,000 x $120) = 300,000
Manufacturing overhead (22,500 x $80)…...

Similar Documents

Unit 1 Managerial Accounting

...Unit 1 IP By Amber Brooker June 14, 2013 ACCT310 Abstract In this essay I am a manager in an accounting department and would like to hire another managerial accountant. The CEO is not convinced, so I must convince him. Manager Report Accounting has two different purposes: the first is reporting for external users and other is for internal users like management. Because of this, accounting can be put into two different categories: financial accounting and managerial accounting. Financial Accounting gives us a view of the financial position of the company. It is management’s responsibility to keep the accounting records in a way that gives us the correct view of the company; it must be free from any material misstatement, which may distort the reader. In order for it to be conveyed properly, management has to follow certain rules and regulation such as GAAP, IAS, etc. Managerial accounting helps with the planning & control, as well as the decision making activities of the company. The success of the business depends on the planning and the correct decision making in keeping the facts and figures related to the situation, this is what the managerial accounting does. So, Financial Accounting is used for external reporting purpose and the managerial accounting is used for internal reporting purpose. Financial Accounting emphasizes on the financial aspect and the Managerial Accounting is the planning and decision making aspect. Most of the time, reports are......

Words: 499 - Pages: 2

Managerial Accounting Chapter 1

...CHAPTER 1 THE NATURE AND PURPOSE OF ACCOUNTING Problems Problem 1-3 The missing numbers are: Year 1 |Gross margin |$9,000 | |Tax expense |1,120 | Year 2 |Sales |$11,968 | |Profit before taxes |2,547 | Year 3 |Cost of goods sold |$2,886 | |Other expenses |6,296 | Other accounting equations such as the following are also illustrated by this problem: Gross margin = Sales - Cost of goods sold Profit before taxes = Gross margin - Other expenses Net income = Profit before taxes - Tax expense The instructor may want to point out to the students that ratios are often used by managers to construct projected financial statements. Year 4 is an example of this application. In order to estimate Year 4, the key ratios to compute are: | |Year 1 |Year 2 |Year 3 |Average | |Sales | 100.0% | 100.0% | 100.0% | 100.0% | |Gross margin | 75.0 | 75.0 | 75.0 | 75.0% | |Profit before taxes | | ...

Words: 1282 - Pages: 6

International Accounting Chapter 1

...Chapter 1 Introduction Discussion Questions 1. In the domestic case, accounting is an information service that provides financial information about a domestic entity to domestic users of that information. International accounting is distinctive in that the entity being reported on is either a multinational company with operations and transactions that transcend national boundaries or involves an entity with reporting obligations to readers who are located outside the reporting entity’s country of domicile. 2. Advantage: Some might argue that measurement, disclosure, and external auditing are three distinct (although related) processes, involving different members of the company. For example, corporate attorneys often are involved in disclosure issues, but seldom intervene in measurement issues. The Board of Directors works with the external auditors but not necessarily with the comptroller s office. Thus, discussion of accounting requirements and voluntary accounting choices in different jurisdictions is simplified by focusing on the three components of accounting. Disadvantage: measurement, disclosure and auditing are interdependent, and should not be viewed in isolation of one another. A company choosing to disclose as little as possible, for example, may use accounting measurement approaches that reduce the information content of financial statements, and select an external auditor who will be relatively lenient in enforcing accounting requirements. One......

Words: 3929 - Pages: 16

Chapter 4 Solution Accounting

...CHAPTER 4 Accrual Accounting Concepts Study Objectives 1. Explain the revenue recognition principle and the matching principle. 2. Differentiate between the cash basis and the accrual basis of accounting. 3. Explain why adjusting entries are needed, and identify the major types of adjusting entries. 4. Prepare adjusting entries for deferrals. 5. Prepare adjusting entries for accruals. 6. Describe the nature and purpose of the adjusted trial balance. 7. Explain the purpose of closing entries. 8. Describe the required steps in the accounting cycle. 9. Understand the causes of differences between net income and cash provided by operating activities. 10. Describe the purpose and the basic form of a worksheet. Summary of Questions by Study Objectives and Bloom’s Taxonomy |Item | | 1. | | 1. | | 1. | | 1. ...

Words: 9678 - Pages: 39

Managerial Accounting Chapter 4 Dq's

...Chapter 4 DQ’s 1. Overhead costs are not directly related to production volume, therefore cannot be traced to units of product in the same way that DM and DL can. 2. Plantwide Rate, Departmental Rate, and Activity-Based Costing 3. These measures are usually readily available in most manufacturing settings and are closely related to volume-bases measures. 4. It is easier to use, only one rate to be allocated to all products. 5. Overhead costs are logically related to the base used to determine the rate and all costs are consumed by products in the same proportions. 6. A cost object is anything to which costs would be assigned. (Units of Product, Product Lines, Departments, Activities, and Projects. 7. If not all overhead costs are related to the base and if products consume resources in different proportions, some products will be assigned too much overhead costs and some too little. 8. Departmental Overhead Rates are more accurate because they reflect the costs of each driver in various departments. With a plantwide overhead rate, some important cost differences would be lost due to the lumping of all costs into one rate. 9. Departmental and Plantwide overhead rates can be similar in the fact that they pool together costs that could be incurred differently. They differ because the departmental rates recognize differences among departments and assign overhead to products based on the driver that makes the most sense for each......

Words: 463 - Pages: 2

Management Accounting Chapter 1

...CHAPTER 1 FUNDAMENTAL CONCEPTS Questions, Exercises, Problems, and Cases: Answers and Solutions 1.1 The first question at the end of each chapter requires the student to review the important concepts or terms discussed in the chapter. In addition to the definitions or descriptions in the chapter, the end of the book has a glossary. 1.2 Titles could be Controller, Vice-President of Finance, or Chief Financial Officer. 1.3 The two major uses of managerial accounting information are (1) information for managerial decision making (for example, make-or-buy decisions, store closure decisions, capital investment decisions), and (2) information for managerial control and performance evaluation (for example, budgeting, comparing actual performance with norms or standards). The first use, which is the focus of Part II of this book, usually requires special purpose reports that estimate how revenues, costs, and investments will differ among the alternatives being considered. The second use, which is the focus of Part III of this book, usually involves routine monthly, quarterly, and annual performance reports. Information for planning requires estimates of future costs, revenues, and other data, while information for performance evaluation is generally based on data about the past. 1.4 Total Quality Management (TQM) means the organization is managed to excel on all dimensions and quality is ultimately defined by the customer. Under total quality management,......

Words: 3147 - Pages: 13

Managerial Accounting Chapter 8 Exercise

...MANAGERIAL ACCOUNTING CHAPTER 8 1. Is Granger Stokes using budges as a planning and control tool? Granger Stokes is behaving like an activist shareholder more concerned with short term gain than a management executive whose primary goal should be positioning the firm for a better competitive outlook over the long term. He is not using the company budgets as a planning and control tool, but is instead using them to boost sales at literally any costs. More specifically, he is impairing the budgetary control effect and essentially unleashing his managers to take aggressive action in pursuit of sales targets. 2. What are the behavioral consequences of the way budgets are being used at PrimeDrive? The behavioral consequences are that managers will take shortcuts to achieve their short term sales targets. So much so that quality control measures are circumvented, and well established business procedures are ignored. The fact that defective drives are knowingly shipped to new customers is a huge red flag. The warranty costs alone will hit the firm when it least expects it because it is highly likely that no reserve provisions are being made since this issue is being swept under the rug, so to speak. When it becomes time to file company financial reports for the period, the figures will be inaccurate and misleading because any financial losses related to the defective drives are not being reported properly. 3. What, if anything, do you think Keri Kalani should do? ...

Words: 379 - Pages: 2

Managerial Accounting Chapter 8.

...rate: Predetermined fixed overhead rate | = | | | | | | = | = $2 per unit | Cost per Unit | Direct material | $ 6 | | Direct labor |   4 | | Variable overhead |   3 | | a. Cost per unit under variable costing | $13 | | Fixed overhead per unit under absorption costing |   2 | | b. Cost per unit under absorption costing | $15 | 2. | a. Delizioso S.p.A. Absorption-Costing Income Statement For the Year Ended December 31, 20x1 | | | | | | Sales revenue (130,000 units sold at $20 per unit) | $2,600,000 | | Less: Cost of goods sold (at  absorption cost of $15 per unit) |  1,950,000 | | Gross margin | $  650,000 | | Less: Selling and administrative expenses: | | | Variable (at $1 per unit) | 130,000 | | Fixed |     150,000 | | Operating income | $  370,000 | Problem 8-21 (Continued) | b. Delizioso S.p.A. Variable-Costing Income Statement For the Year Ended December 31, 20x1 | | | | | Sales revenue (130,000 units sold at $20 per unit) | $2,600,000 | | Less: Variable expenses: | | | Variable manufacturing costs  (at variable cost of $13 per unit) | 1,690,000 | | Variable selling and administrative costs  (at $1 per unit) |    130,000 | | Contribution margin | $  780,000 | | Less: Fixed expenses: | | | Fixed manufacturing overhead |......

Words: 1015 - Pages: 5

Accounting Chapter 1

...Chapter First, 15 questions 1. Sole, Partnership and Corporation 2. Advantages of corp: The liabilities of the owners are limited to their investment to the company. It can also raise money easily through stock market. Disadvantages of corp: the establishment of a corp is complicate. There are usually a large amount of shareholders in a corp, and the management may act out of his or her interest instead of everyone’s interests. 3. Advantages of partnership or sole: It is much more simply to form. Owners can also make decision on their accounts. Owners get all the profit. Disadvantages of partnership or sole: Liability is extremely high. The capacity to raise capital is limited. Owners take all the responsibilities. 4. Marketing managers, production supervisors, finance directors and company officers. Internal users with information are managerial accounting is to provide relevant and timely information for managers' and employees' decision-making needs 5. Investors, creditors, research scholars and government. 6. Financing activities: the issuance or redemption of bonds. Investing activities:  acquisition (purchase) of long-term investments, equipment used in the business and a building used in the business. Operating activities: manufacturing, retail and service. 7. Service revenue: IS Equipment: BS Advertising expense: BS Accounting receivable: IS Common stock: IS Internet payable: BS 8. Financing activities, Investing......

Words: 436 - Pages: 2

Managerial Accounting: Fifth Edition Chapter 1: Exercise 14 – Problems 2 & 4 Chapter 2: Exercises 9 & 12 – Problems 1 & 6

...CHAPTER 1: Exercise 14 If Ken stayed open on Saturdays, the added income would be $130,000 per year ($2,500 x 52), while the additional costs are shown to be $1,000 ($700 + $500 + $100 + $200). Using these two figures, we can calculate the opportunity cost (the loss from an opportunity not taken), which would be $1,500 ($2,500 - $1,000). To me, this says that Ken should keep his shop open on Saturday’s. Rent or depreciation of office equipment do not need to be calculated because these are fixed costs. They would not change regardless of how many days his shop is open nor his shops production. Also, rent of course would not change if his shop stays open on Saturday’s because rent covers the whole month. Problem 2 a.) If we reference 1-1 so we can see the production costs, we need to add the ingredient costs of $20,000 + labor costs of $12,000, totaling $32,000. Then divide that by the number of jars that actually produced (25,000). This equals $1.28/one jar of salsa. The incremental cost is calculated as follows: $1.28 x 50,000 (extra jars of salsa) = $64,000. b.) The revenue started out at $1,625,000 (325,000 jars x $5.00), while the new revenue would be $1,725,000 (375,000 x $4.60). After calculating the difference, we can see that the incremental revenue after the reduction of price would be $100,000 ($1,725,000 - $1,625,000). c.) Yes, he should lower the price of its salsa. Problem 4 a.) On page 6 of our text book, we learn about the......

Words: 731 - Pages: 3

Chapter 4 - Accounting Analysis

...make, not management’s own assumptions. Opportunities for accounting adjustments can arise in these situations if: * Accounting rules do not do a good job of capturing the firm’s economics. * Managers use their discretion to distort the firm’s performance. * There are legitimate differences in opinion between managers and analysts about economic uncertainties facing the firm that are reflected in asset values. ASSET DISTORTIONS * Asset overstatements are likely to arise when managers have incentives to increase reported earnings. Thus, adjustments to assets also typically require adjustments to the income statement in the form of either increased expenses or reduced revenues. * Asset understatements typically arise when managers have incentives to deflate reported earnings – Income smoothing * When the firm is performing exceptionally well and managers decide to store away some of the current strong earnings for a rainy day. This can be implemented by overstating current period expenses (and understating the value of assets) during good times. * Asset (and expense) understatements can also arise in a particularly bad year, when managers decide to ‘‘take a bath’’ by understating current period earnings to create the appearance of a turnaround in following years. * Accounting rules themselves can also lead to the understatement of assets. * In many countries accounting standards require firms to expense outlays for research......

Words: 2422 - Pages: 10

Advanced Accounting Chapter 1

...Chapter 1 the equity method of accounting for investments Chapter Outline I. Three methods are principally used to account for an investment in equity securities along with a fair value option. A. Fair value method: applied by an investor when only a small percentage of a company’s voting stock is held. 1. Income is recognized when the investee declares a dividend. 2. Portfolios are reported at fair value. If fair values are unavailable, investment is reported at cost. B. Consolidation: when one firm controls another (e.g., when a parent has a majority interest in the voting stock of a subsidiary or control through variable interests, their financial statements are consolidated and reported for the combined entity. C. Equity method: applied when the investor has the ability to exercise significant influence over operating and financial policies of the investee. 1. Ability to significantly influence investee is indicated by several factors including representation on the board of directors, participation in policy-making, etc. 2. GAAP guidelines presume the equity method is applicable if 20 to 50 percent of the outstanding voting stock of the investee is held by the investor. Current financial reporting standards allow firms to elect to use fair value for any new investment in equity shares including those where the equity method would otherwise apply. However, the option, once taken, is irrevocable. Investee......

Words: 11637 - Pages: 47

Chapter 4 Accounting

...contracts, recognizes revenue gradually over time What are the five criteria for recognizing revenue under the IFRS? 1) Significant risk and rewards of ownership have been transferred from the seller to the buyer a. Performance criteria b. Seller has done what it has to do to be entitled to payment 2) Seller has no involvement or control over the goods sold c. Same as above 3) Collection of payment is assured d. Collectability – seller must have reasonable expectation of being paid e. If no reasonable expectation – can not recognize revenue f. Uncollectable amount has to be able to be estimated 4) Amount of revenue can be reasonable measurable 5) Costs of earning revenue can be reasonably measured g. Measurability criteria h. Must be able to measure how much was earned and the costs to earn it i. If seller isn’t able to estimate costs that occur even after the critical event ex warrenty, cnat recognize it What is the sixth criterion for revenue recognition and why is it so important? Sixth criterion: * The critical event selected should provide a reasonable and fair representation of the entities activities, given the needs of the stake holders * Manger should assess if the critical point is fair and reasonable * Important because accounting information must provide useful imformation so stakeholders can be informed What is the gradual approach......

Words: 453 - Pages: 2

Managerial Accounting Chapter 2

...Veronica B.--Week 2 – Homework Chapter 3 # 13 Required: a. Calculate the cost per equivalent unit for materials & conversion costs. Materials = $446,970 / (45,000 + 2,550)= $9.40 Conversion Cost = $407,880 / (45,000 + 1,350) = $8.80 b. Calculate the cost of items completed during November. 45,000 x $18.20 = $ 819,000… $18.20 came by adding $9.40 + 8.80 c. Calculate the cost of ending Work in Process Material Cost: (2,550 x $9.40) = $23,970 Conversion: (1,350 x $8.80) = $ 11,880 $35,850 Total cost of ending work in process #14 Quantity Schedule Required: Prepare a reconciliation of units and a computation of equivalent units for June for the cleaning department. Unit Reconciliation Units in begininning Work in Process 40,000 Units started in June 500,000 540,000 (Units to account for) Units in ending Work in Process -- 540,000 – 30,000 = 510,000 Units Completed 510,000 Problem # 11 Unit Reconciliation Units in Beginning WIP 7,000 Units started during WIP 97,000 Units to account for 104,000 Units completed and transferred to bottling 91,000 Units in ending WIP 13,000 Units accounted for ...

Words: 255 - Pages: 2

Cost Accounting Chapter 1

...CHAPTER 1 The Changing Role of Managerial Accounting in a Dynamic Business Environment ANSWERS TO REVIEW QUESTIONS 1-1 The explosion in e-commerce will affect managerial accounting in significant ways. One effect will be a drastic reduction in paper work. Millions of transactions between businesses will be conducted electronically with no hard-copy documentation. Along with this method of communicating for business transactions comes the very significant issue of information security. Businesses need to find ways to protect confidential information in their own computers, while at the same time sharing the information necessary to complete transactions. Another effect of e-commerce is the dramatically increased speed with which business transactions can be conducted. In addition to these business-to-business transactional issues, there will be dramatic changes in the way managerial accounting procedures are carried out, one example being e-budgeting, which is the enterprise-wide and electronic completion of a company’s budgeting process. 2. Plausible goals for the organizations listed are as follows: (a) (1) To achieve and maintain profitability, and (2) to grow on-line sales of books, music, and other goods. (b) American Red Cross: (1) To raise funds from the general public sufficient to have resources available to meet any disaster that may occur, and (2) to provide assistance to people who are victims of a......

Words: 4230 - Pages: 17