Managerial Accounting and Cost Concepts
Solutions to Questions
2-1 Managers carry out three major activities in an organization: planning, directing and motivating, and controlling. Planning involves establishing a basic strategy, selecting a course of action, and specifying how the action will be implemented. Directing and motivating involves mobilizing people to carry out plans and run routine operations. Controlling involves ensuring that the plan is actually carried out and is appropriately modified as circumstances change.
2-2 The planning and control cycle involves formulating plans, implementing plans, measuring performance, and evaluating differences between ...view middle of the document...
These labor costs are incurred to support production, but the workers involved do not directly work on the product.
e. Manufacturing overhead includes all manufacturing costs except direct materials and direct labor. Consequently, manufacturing overhead includes indirect materials and indirect labor as well as other manufacturing costs.
2-6 A product cost is any cost involved in purchasing or manufacturing goods. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. A period cost is a cost that is taken directly to the income statement as an expense in the period in which it is incurred.
2-7 The income statement of a manufacturing company differs from the income statement of a merchandising company in the cost of goods sold section. A merchandising company sells finished goods that it has purchased from a supplier. These goods are listed as “purchases” in the cost of goods sold section. Because a manufacturing company produces its goods rather than buying them from a supplier, it lists “cost of goods manufactured” in place of “purchases.” Also, the manufacturing company identifies its inventory in this section as Finished Goods inventory, rather than as Merchandise Inventory.
2-8 The schedule of cost of goods manufactured lists the manufacturing costs that have been incurred during the period. These costs are organized under the three categories of direct materials, direct labor, and manufacturing overhead. The total costs incurred are adjusted for any change in the Work in Process inventory to determine the cost of goods manufactured (i.e. finished) during the period.
The schedule of cost of goods manufactured ties into the income statement through the cost of goods sold section. The cost of goods manufactured is added to the beginning Finished Goods inventory to determine the goods available for sale. In effect, the cost of goods manufactured takes the place of the Purchases account in a merchandising firm.
2-9 A manufacturing company usually has three inventory accounts: Raw Materials, Work in Process, and Finished Goods. A merchandising company may have a single inventory account—Merchandise Inventory.
2-10 Product costs are assigned to units as they are processed and hence are included in inventories. The flow is from direct materials, direct labor, and manufacturing overhead to Work in Process inventory. As goods are completed, their cost is removed from Work in Process inventory and transferred to Finished Goods inventory. As goods are sold, their cost is removed from Finished Goods inventory and transferred to Cost of Goods Sold. Cost of Goods Sold is an expense on the income statement.
2-11 Yes, costs such as salaries and depreciation can end up as part of assets on the balance sheet if they are manufacturing costs. Manufacturing costs are inventoried until the associated finished goods are sold. Thus, if some units are still in inventory, such costs...