Question

Introduction to Management Accounting (ACC 202)
Spring 2018/19

Chapter 19
Managerial Accounting


Part I: Exercises

Ex. 1
Knight Company reports the following costs and expenses in May.
Factory utilities $15,500 Direct labor $69,100
Depreciation on factory equipment 12,650 Sales salaries 46,400
Depreciation on delivery trucks 3,800 Property taxes on factory building 2,500
Indirect factory labor 48,900 Repairs to office equipment 1,300
Indirect materials 80,800 Factory repairs 2,000
Direct materials used 137,600 Advertising 15,000
Factory manager’s salary 8,000 Office supplies used 2,640

Instructions
From the information, determine the total amount of:
a. Manufacturing overhead.
b. Product costs.
c. Period costs.


Ex. 2
Cepeda Corporation has the following cost records for June 2018
Indirect factory labor $ 4,500 Factory utilities $ 400
Direct materials used 20,000 Depreciation, factory equipment 1,400
Work in process, 6/1/18 3,000 Direct labor 40,000
Work in process, 6/30/18 3,800 Maintenance, factory equipment 1,800
Finished goods, 6/1/18 5,000 Indirect materials 2,200
Finished goods, 6/30/18 7,500 Factory manager’s salary 3,000
.
Instructions
a. Prepare a cost of goods manufactured schedule for June 2018.
b. Prepare an income statement through gross profit for June 2018 assuming sales revenue is $92,100.






Part II: Problems

Phillips Company is a manufacturer of computers. Its controller resigned in October 2018. An inexperienced assistant accountant has prepared the following income statement for the month of October 2018.
Phillips Company
Income Statement
For the Month Ended October 31, 2018
Sales revenue $780,000
Less: Operating expenses
Raw materials purchases $264,000
Direct labor cost 190,000
Advertising expense 90,000
Selling and administrative salaries 75,000
Rent on factory facilities 60,000
Depreciation on sales equipment 45,000
Depreciation on factory equipment 31,000
Indirect labor cost 28,000
Utilities expense 12,000
Insurance expense 8,000 803,000
Net loss $ (23,000)

Prior to October 2018, the company had been profitable every month. The company’s president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired additional information as follows.
Inventory balances at the beginning and end of October were:
October 1 October 30
Raw materials $18,000 $29,000
Work in process 16,000 14,000
Finished goods 30,000 45,000

Only 75% of the utilities expense and 60% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

Instructions
a. Prepare a schedule of cost of goods manufactured for October 2018.
b. Prepare a correct income statement for October 2018.

Answer 1

Ex. 1
a.

Manufacturing Overhead
Factory Utilities	$         15,500
Depreciation on factory equipment	$         12,650
Indirect Factory Labor	$         48,900
Indirect Materials	$         80,800
Factory Managers Salary	$           8,000
Property taxes on factory building	$           2,500
Factory repairs	$           2,000
Total Manufacturing Overhead	$       170,350

b.

Product Costs
Direct Materials	$       137,600
Direct Labor	$         69,100
Manufacturing overhead	$       170,350
Total Product Costs	$       377,050

c.

Period Costs
Depreciation on Delivery Trucks	$           3,800
Sales Salaries	$         46,400
Repairs to Office Equipment	$           1,300
Advertising	$         15,000
Office Supplies Used	$           2,640
Total Period Costs	$         69,140

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