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Table of contents
  1. Preface
  2. 1 Accounting as a Tool for Managers
    1. Why It Matters
    2. 1.1 Define Managerial Accounting and Identify the Three Primary Responsibilities of Management
    3. 1.2 Distinguish between Financial and Managerial Accounting
    4. 1.3 Explain the Primary Roles and Skills Required of Managerial Accountants
    5. 1.4 Describe the Role of the Institute of Management Accountants and the Use of Ethical Standards
    6. 1.5 Describe Trends in Today’s Business Environment and Analyze Their Impact on Accounting
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Thought Provokers
  3. 2 Building Blocks of Managerial Accounting
    1. Why It Matters
    2. 2.1 Distinguish between Merchandising, Manufacturing, and Service Organizations
    3. 2.2 Identify and Apply Basic Cost Behavior Patterns
    4. 2.3 Estimate a Variable and Fixed Cost Equation and Predict Future Costs
    5. Key Terms
    6. Summary
    7. Multiple Choice
    8. Questions
    9. Exercise Set A
    10. Exercise Set B
    11. Problem Set A
    12. Problem Set B
    13. Thought Provokers
  4. 3 Cost-Volume-Profit Analysis
    1. Why It Matters
    2. 3.1 Explain Contribution Margin and Calculate Contribution Margin per Unit, Contribution Margin Ratio, and Total Contribution Margin
    3. 3.2 Calculate a Break-Even Point in Units and Dollars
    4. 3.3 Perform Break-Even Sensitivity Analysis for a Single Product Under Changing Business Situations
    5. 3.4 Perform Break-Even Sensitivity Analysis for a Multi-Product Environment Under Changing Business Situations
    6. 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  5. 4 Job Order Costing
    1. Why It Matters
    2. 4.1 Distinguish between Job Order Costing and Process Costing
    3. 4.2 Describe and Identify the Three Major Components of Product Costs under Job Order Costing
    4. 4.3 Use the Job Order Costing Method to Trace the Flow of Product Costs through the Inventory Accounts
    5. 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production
    6. 4.5 Compute the Cost of a Job Using Job Order Costing
    7. 4.6 Determine and Dispose of Underapplied or Overapplied Overhead
    8. 4.7 Prepare Journal Entries for a Job Order Cost System
    9. 4.8 Explain How a Job Order Cost System Applies to a Nonmanufacturing Environment
    10. Key Terms
    11. Summary
    12. Multiple Choice
    13. Questions
    14. Exercise Set A
    15. Exercise Set B
    16. Problem Set A
    17. Problem Set B
    18. Thought Provokers
  6. 5 Process Costing
    1. Why It Matters
    2. 5.1 Compare and Contrast Job Order Costing and Process Costing
    3. 5.2 Explain and Identify Conversion Costs
    4. 5.3 Explain and Compute Equivalent Units and Total Cost of Production in an Initial Processing Stage
    5. 5.4 Explain and Compute Equivalent Units and Total Cost of Production in a Subsequent Processing Stage
    6. 5.5 Prepare Journal Entries for a Process Costing System
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  7. 6 Activity-Based, Variable, and Absorption Costing
    1. Why It Matters
    2. 6.1 Calculate Predetermined Overhead and Total Cost under the Traditional Allocation Method
    3. 6.2 Describe and Identify Cost Drivers
    4. 6.3 Calculate Activity-Based Product Costs
    5. 6.4 Compare and Contrast Traditional and Activity-Based Costing Systems
    6. 6.5 Compare and Contrast Variable and Absorption Costing
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  8. 7 Budgeting
    1. Why It Matters
    2. 7.1 Describe How and Why Managers Use Budgets
    3. 7.2 Prepare Operating Budgets
    4. 7.3 Prepare Financial Budgets
    5. 7.4 Prepare Flexible Budgets
    6. 7.5 Explain How Budgets Are Used to Evaluate Goals
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  9. 8 Standard Costs and Variances
    1. Why It Matters
    2. 8.1 Explain How and Why a Standard Cost Is Developed
    3. 8.2 Compute and Evaluate Materials Variances
    4. 8.3 Compute and Evaluate Labor Variances
    5. 8.4 Compute and Evaluate Overhead Variances
    6. 8.5 Describe How Companies Use Variance Analysis
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  10. 9 Responsibility Accounting and Decentralization
    1. Why It Matters
    2. 9.1 Differentiate between Centralized and Decentralized Management
    3. 9.2 Describe How Decision-Making Differs between Centralized and Decentralized Environments
    4. 9.3 Describe the Types of Responsibility Centers
    5. 9.4 Describe the Effects of Various Decisions on Performance Evaluation of Responsibility Centers
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  11. 10 Short-Term Decision Making
    1. Why It Matters
    2. 10.1 Identify Relevant Information for Decision-Making
    3. 10.2 Evaluate and Determine Whether to Accept or Reject a Special Order
    4. 10.3 Evaluate and Determine Whether to Make or Buy a Component
    5. 10.4 Evaluate and Determine Whether to Keep or Discontinue a Segment or Product
    6. 10.5 Evaluate and Determine Whether to Sell or Process Further
    7. 10.6 Evaluate and Determine How to Make Decisions When Resources Are Constrained
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  12. 11 Capital Budgeting Decisions
    1. Why It Matters
    2. 11.1 Describe Capital Investment Decisions and How They Are Applied
    3. 11.2 Evaluate the Payback and Accounting Rate of Return in Capital Investment Decisions
    4. 11.3 Explain the Time Value of Money and Calculate Present and Future Values of Lump Sums and Annuities
    5. 11.4 Use Discounted Cash Flow Models to Make Capital Investment Decisions
    6. 11.5 Compare and Contrast Non-Time Value-Based Methods and Time Value-Based Methods in Capital Investment Decisions
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  13. 12 Balanced Scorecard and Other Performance Measures
    1. Why It Matters
    2. 12.1 Explain the Importance of Performance Measurement
    3. 12.2 Identify the Characteristics of an Effective Performance Measure
    4. 12.3 Evaluate an Operating Segment or a Project Using Return on Investment, Residual Income, and Economic Value Added
    5. 12.4 Describe the Balanced Scorecard and Explain How It Is Used
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  14. 13 Sustainability Reporting
    1. Why It Matters
    2. 13.1 Describe Sustainability and the Way It Creates Business Value
    3. 13.2 Identify User Needs for Information
    4. 13.3 Discuss Examples of Major Sustainability Initiatives
    5. 13.4 Future Issues in Sustainability
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Thought Provokers
  15. A | Financial Statement Analysis
  16. B | Time Value of Money
  17. C | Suggested Resources
  18. Answer Key
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 4
    5. Chapter 5
    6. Chapter 6
    7. Chapter 7
    8. Chapter 8
    9. Chapter 9
    10. Chapter 10
    11. Chapter 11
    12. Chapter 12
    13. Chapter 13
  19. Index
PB 1.

LO 4.1For each item listed, state whether a job order costing system or process costing system would be best.

  1. television repair
  2. cell phone charge cords
  3. glassware with company logo
  4. dog food
  5. golf balls
  6. hotel signs to welcome guests
  7. highlighters and pens
PB 2.

LO 4.4Rulers Company is a neon sign company that estimated overhead will be $60,000, consisting of 1,500 machine hours. The cost to make Job 416 is $95 in neon, 15 hours of labor at $13 per hour, and five machine hours. During the month, it incurs $95 in indirect material cost, $130 in administrative labor, $320 in utilities, and $350 in depreciation expense.

  1. What is the predetermined overhead rate if machine hours are considered the cost driver?
  2. What is the cost of Job 416?
  3. What is the overhead incurred during the month?
PB 3.

LO 4.4Event Forms expects $120,000 in overhead during the next year. It doesn’t know whether it should apply overhead on the basis of its anticipated direct labor hours of 6,000 or its expected machine hours of 5,000. What would be the product cost under each predetermined allocation rate if the last job incurred $3,500 in direct material cost, 55 direct labor hours, and 55 machine hours? Wages are paid at $17 per hour.

PB 4.

LO 4.5Summary information from a company’s job cost sheets shows the following information:

Chart showing information for 4 jobs: BB3 $3,500 in April, $1,500 in May, completed in May, not sold. BB4 9,231 in April, completed in April, sold in May. BB5 2,540 in May, completed in May, sold in June. BB6 3230 in May, 1434 in June, completed in July, not sold

What are the balances in the work in process inventory, finished goods inventory, and cost of goods sold for April, May, and June?

PB 5.

LO 4.5Complete the information in the cost computations shown here:

Three cost computation charts. Raw Materials chart: Beginning Raw Materials Inventory $74,323, Minus Purchases 77,321 equals Materials available for use ? then subtract Ending Raw Materials Inventory of ? to get Materials Used in Production 78,413. Work In Process Inventory chart: Beginning WIP Inventory $253,210 plus Materials used in production ? plus Direct Labor 125,900 plus Overhead Applied 94,425 equals Manufacturing costs Incurred ? . Then subtract Ending WIP Inventory 242,932 to get Cost of Goods Manufactured ?. Finished Goods Inventory chart: Beginning Finished Goods Inventory of 333,149 plus Cost of Goods Manufactured of 309,016 equals Goods Available for Sale of ? . Then subtract Ending Finished Goods Inventory of 354,235 to get Cost of Goods Sold of 287,930.
PB 6.

LO 4.5During the year, a company purchased raw materials of $77,321 and incurred direct labor costs of $125,900. Overhead is applied at the rate of 75% of the direct labor cost. These are the inventory balances:

Chart showing Beginning and Ending inventory balances: Raw Materials Inventory: 15,394 and 17,432, respectively. Work In Process Inventory: 57,304 and 53,721, respectively. Finished Goods Inventory: 120,432 and 132,432, respectively.

Compute the cost of materials used in production, the cost of goods manufactured, and the cost of goods sold.

PB 7.

LO 4.5Freeman Furnishings has summarized its data as shown. Direct labor hours will be used as the activity base to allocate overhead:

Data chart showing: Raw material purchased 320,000, Raw material beginning inventory 15,000, Raw material ending inventory 14,000, Work in Process beginning inventory 35,000, Work in process ending inventory 37,000, Estimated overhead 300,000. Direct labor hours incurred 24,000, Estimated direct labor hours 25,000, Depreciation of factory building $50,000 Factory real estate taxes 7,382 Factory utility expenses 45,000, Indirect materials 20,000, Indirect labor 1,000, Direct labor cost 100,000. Direct labor hours incurred, 24,000. Estimated direct labor hours, 25,000.

Compute the cost of goods manufactured.

PB 8.

LO 4.6Queen Bee’s Honey, Inc., estimated its annual overhead to be $110,000 and based its predetermined overhead rate on 27,500 direct labor hours. At the end of the year, actual overhead was $106,000 and the total direct labor hours were 29,000. What is the entry to dispose of the overapplied or underapplied overhead?

PB 9.

LO 4.6Mountain Tops applies overhead on the basis of direct labor hours and reports the following information:

A chart showing Overhead budget $450,000, actual $452,000; Direct labor hour budget 75,000, 77,000 actual; Direct materials $195,000, and Direct labor $333,865
  1. What is the predetermined overhead rate?
  2. How much overhead was applied during the year?
  3. Was overhead overapplied or underapplied, and by what amount?
  4. What is the journal entry to dispose of the overapplied or underapplied overhead?
PB 10.

LO 4.6The actual overhead for a company is $73,175. Overhead was based on 4,500 machine hours and was $3,325 overapplied for the year.

  1. What is the overhead application rate per direct labor hour?
  2. What is the journal entry to dispose of the underapplied overhead?
PB 11.

LO 4.6When setting its predetermined overhead application rate, Tasty Turtle estimated its overhead would be $75,000 and manufacturing would require 25,000 machine hours in the next year. At the end of the year, it found that actual overhead was $74,000 and manufacturing required 24,000 machine hours.

  1. Determine the predetermined overhead rate.
  2. What is the overhead applied during the year?
  3. Prepare the journal entry to eliminate the under- or overapplied overhead.
PB 12.

LO 4.7The following data summarize the operations during the year. Prepare a journal entry for each transaction.

  1. Purchase of raw materials on account: $1,500
  2. Raw materials used by Job 1: $400
  3. Raw materials used as indirect materials: $50
  4. Direct labor for Job 1: $200
  5. Indirect labor incurred for Job 1: $30
  6. Factory utilities incurred on account: $500
  7. Adjusting entry for factory depreciation: $200
  8. Manufacturing overhead applied as percent of direct labor: 100%
  9. Job 1 is transferred to finished goods
  10. Job 1 is sold: $1,000
  11. Manufacturing overhead is underapplied: $100
PB 13.

LO 4.7The following events occurred during March for Ajax Company. Prepare a journal entry for each transaction.

  1. Materials were purchased on account for $5,429.
  2. Materials were requisitioned to begin work on Job C15 in the amount of $2,500.
  3. Direct labor expense for Job C15 was $4,250.
  4. Actual overhead was incurred on account for $5,385.
  5. Factory overhead was charged to Job C15 at the rate of 200% direct labor.
  6. Job C15 was transferred to finished goods at $15,250.
  7. Job C15 was sold on account for $28,000.
PB 14.

LO 4.8A leather repair shop incurred the following expenses while repairing luggage for a major airline.

  1. Time cards showing direct labor: $750
  2. Time cards showing indirect labor: $100
  3. Purchased repair supplies on account: $1,500
  4. Issued indirect supplies: $350
  5. Utilities expense on account: $24,000
  6. Overhead applied: 100% of direct labor costs

Journalize the listed transactions.

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