Question

Mastery Problem: Introduction to Managerial Accounting Able Baker Charlie Company Charles Maxwell is starting a cheesecake bakery, Able Baker Charlie Company, to produce and sell different flavored cheesecakes to restaurants and the general public. He has just begun his study of accounting, and is a bit confused about the many types of reports he has read about and how they will help him run his business. He asks you to help him clarify what the differences between managerial accounting and financial accounting are. He's also wondering how to set up his inventory, how to classify the costs of his business, and how to fill in some missing information Managerial vs. Financial Select whether the following characteristics are most often associated with managerial accounting or financial accounting. Primarily used for internal decision making Generally Accepted Accounting Principles (GAAP) must be used Prepared statements usually pertain to the company as a whole rather than individual departments or products Information provided will often be subjective, such as estimated future results Often prepared on an as-needed basis rather than at fixed intervals

Answer 1

Primarily used for internal decision making	Managerial accounting
Generally Accepted Accounting Principles (GAAP) must be used	Financial accounting
Prepared statements usually pertain to the company as a whole rather than individual departments or products	Financial accounting
Information provided will often be subjective, such as estimated future results	Managerial accounting
Often prepared on an as-needed basis rather than at fixed intervals	Managerial accounting

Cost	Product Cost	Period Cost	Direct Materials	Direct Labor	Factory Overhead	Selling Expense	Administrative Expense	Direct Cost	Indirect Cost	Prime Cost	Conversion Cost
Eggs used to make cheesecakes	Yes	No	Yes	No	No	No	No	Yes	No	Yes	No
Baker's wages	Yes	No	No	Yes	No	No	No	Yes	No	Yes	Yes
Delivery driver wages	No	Yes	No	No	No	Yes	No	No	Yes	No	No
Depreciation of office computers	No	Yes	No	No	No	No	Yes	No	Yes	No	No
Power to run the cheesecake ovens	Yes	No	No	No	Yes	No	No	Yes	No	No	Yes
President's salary	No	Yes	No	No	No	No	Yes	No	Yes	No	No

Note: Only six types of cost have been given in the image provided however the image for direct/indirect costs shows eight rows. Kindly re-check.

Account	Account Balances		Costs Incurred
	Jan. 31	Feb. 28
Materials Inventory	7200	3600	Direct Materials used	15300
Work in Process Inventory	27000	14400	Direct labor incurred	5100
Finished Goods Inventory	10900	15500	Factory overhead incurred	9000
			Cost of goods sold	37400

Working:

Assume the materials inventory at Jan. 31 is 'x'. Then materials inventory at Feb. 28 is '0.5x'.

x - 0.5x = 3600

0.5x = 3600

x = 7200

Direct materials
Materials inventory, Jan 31	7200
Add Purchases	11700
Total material available	18900
Less Materials inventory, Feb 28	3600
Direct materials used	15300
Direct labor (15300/3)	5100
Factory overhead (29400 - 15300 - 5100)	9000
Total manufacturing costs	29400
Work in process inventory, Jan 31	27000
Total work in process during the period	56400
Less work in process inventory, Feb 28 (56400 - 42000)	14400
Cost of goods manufactured $ (29400/70%)	42000
Add Finished goods inventory, Jan 31 (52900 - 42000)	10900
Cost of finished goods available for sale (15500 + 37400)	52900
Less finished goods inventory, Feb 28	15500
Cost of goods sold $ (29400 + 8000)	37400