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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 7.2Lens & Shades sells sunglasses for $37 each and is estimating sales of 21,000 units in January and 19,000 in February. Each lens consists of 2.00 mm of plastic costing $2.50 per mm, 1.7 oz of dye costing $2.80 per ounce, and 0.50 hours direct labor at a labor rate of $18 per unit. Desired inventory levels are:

Beginning inventory for January, February, and March respectively: Finished goods 3,500, 3,800, 4,500; Direct materials: plastic, 4,100, 4,500, 4,600; Direct materials: dye, 10,100, 11,300, 12,200.

Prepare a sales budget, production budget, direct materials budget for silicon and solution, and a direct labor budget.

PB 2.

LO 7.2The following data were obtained from the financial records of Sonicbrush, Inc., for March:

Estimated Sales, $333,000, Sales 329,831, Purchases 179,431, Ending Inventory (of next month’s sales) 15 percent, Administrative salaries 70,200, Marketing expense of estimated sales 3 percent, Sales commissions of estimated sales 4 percent, Rent expense per month 8,400, Depreciation expense per month 1,200, Utilities per month 2,800, Taxes on income (before taxes) 15 percent.

Sales are expected to increase each month by 15%. Prepare a budgeted income statement.

PB 3.

LO 7.2TIB makes custom guitars and prepared the following sales budget for the second quarter

April, May, and June (respectively): Units, 80, 86, 84; Sales price $1,200, 1,200, 1,200; Budgeted sales, $96,000, 103,200, 100,800.

It also has this additional information related to its expenses:

Direct material per unit $55, Direct labor per hour 20, Variable manufacturing overhead per hour 3.50, Fixed manufacturing overhead per month 3,000, Sales commissions per unit 20, Sales salaries per month 5,000, Delivery expense per unit 0.50, Utilities per month 4,000, Administrative salaries per month 20,000, Marketing expenses per month 8,000, Insurance expense per month 11,000, Depreciation expense per month 9,000.

Prepare a sales and administrative expense budget for each month in the quarter ended June 30, 2018.

PB 4.

LO 7.2Prepare a budgeted income statement using the information shown.

Sales (units) 84,000, Sales price per unit $22, Uncollectible expense 1 percent of sales, Direct material per unit $1.50, Direct labor per unit (hours) 0.8, Direct labor rate per hour $19, Manufacturing overhead $14,000, Variable sales and administrative expenses per unit $2.10, Fixed sales and administrative expenses $23,000, Taxes (on income before taxes) 15 percent.
PB 5.

LO 7.2Sunshine Gardens overhead expenses are:

Indirect material, pounds per unit 0.50, Indirect material cost per pound $1, Indirect labor hours 1, Indirect labor rate per hour $16.50, Variable maintenance per unit $0.75, Variable utilities per unit $0.20, Supervisor salaries $10,000, Maintenance salaries $9,000, Insurance $3,000, Depreciation $1,500.

Given production of 10,200; 11,300; 12,900; and 13,200 for each quarter of the next year, prepare a manufacturing overhead budget for each quarter.

PB 6.

LO 7.3Relevant data from the operating budget of The Framers are:

Quarter 1 and Quarter 2 respectively: Sales $33,948, 76,482; Direct material purchases 25,312, 26,423; Direct labor 29,948, 24,328; Manufacturing overhead 9,322, 10,299; Selling and admin expenses 19,283, 19,238; Depreciation included in selling and admin 950, 800; Collections 34,324, 76,938; Cash payments 29,349, 20,937; Cash received: other 8,000, 500; Dividend 0, 500.

Other data:

  • Capital assets were sold in quarter 1 and $8,000 was collected in quarter 1 and $500 collected in quarter 2.
  • Dividends of $500 will be paid in May
  • The beginning cash balance was $50,000 and a required minimum cash balance is $10,000.
  • Prepare a cash budget for the first two quarters of the year.
PB 7.

LO 7.3Fill in the missing information from the following schedules:

Sales Budget, For the Year Ending December 31, 2018, Quarter 1, Quarter 2, Quarter 3, Quarter 4, Total (respectively): Expected sales (units) 21,000, 26,250, 8,750, 9.000, 65,000; Sales price per unit $?, ?, ?, ?; Total sales revenue $315,000, ?, ?, ?, 975,000. Production Budget For the Year Ending December 31, 2018, Quarter 1, Quarter 2, Quarter 3, Quarter 4, Q 1Year 2 (respectively): Expected Sales 21,000, 26,250, 8,750, 9,000, 8,000; plus Desired ending inventory 5,250, ?, ?, 1,600, –; Total required units 26,250, 28,000, 10,550, 10,600, 8,000; minus Beginning Inventory 5,250, 5,250, 1,750, 1,800, 1,600; Equals required production ?, ?, ?, ?, 6,400; Total 61,350. Direct Materials Budget, For the Year Ending December 31, 2018, Quarter 1, Quarter 2, Quarter 3, Quarter 4, Total (respectively): Units to be produced ?, ?, ?, ?, 61,350; Times Direct material per unit 2, 2, 2, 2, 2; Total pounds needed for production 42,000, 45,500, 17,600, 17,600, 122,700; Add: desired ending inventory11,375, ?, ?, 3,200, 3,200; Total material required 53,375, 49,900, 22,000, 20,800, 125,900; Less: beginning inventory 0, 11,375, 4,400, 4,400, –; Pounds of direct material purchase requirements 53,375, 38,525, 17,600, 16,400, 125,900; Cost per pound $1.50, 1.50, 1.50, 1.50, 1.50; Total cost of direct material purchase $80,063, 57,788, 26,400, 24,600, 188,850; Total $188,850, 188,850. Direct Labor Budget, For the Year Ending December 31, 2018, Quarter 1, Quarter 2, Quarter 3, Quarter 4, Total (respectively): Units to be produced ?, ?, ?, ?, ?; Direct labor hours per unit 1, 1, 1, 1, 1; Total required direct labor hours 15,750, 17,063, 6,600, 6,600, 46,013; Labor cost per hour $25, ?, ?, ?, ?; Total direct labor cost $393,750, 426,563, 165,000, 165,000, 1,150,313.
PB 8.

LO 7.3Mesa Aquatics, Inc. estimated direct labor hours as 1,900 in quarter 1, 2,000 in quarter 2, 2,200 in quarter 3, and 1,800 in quarter 4. a sales and administration budget using the information provided.

Indirect material per hour $1.00; Indirect labor per hour 1.25; Maintenance per hour 0.25; Utilities per hour 0.50; Supervisory salaries 17,000; Maintenance 5,000; Property taxes and insurance 6,000; Depreciation 3,500.
PB 9.

LO 7.3Amusement tickets estimated sales are:

January $231,837, February 231,937, March 381,274, April 212,947, May 282,172, June 281,836.

What are the balances in accounts receivable for April, May, and June if 60% of sales are collected in the month of sale, 30% are collected the month after the sale, and 10% are collected the second month after the sale?

PB 10.

LO 7.3All Temps has a policy of always paying within the discount period, and each of its suppliers provides a discount of 2% if paid within 10 days of purchase. Because of the purchase policy, 80% of its payments are made in the month of purchase and 20% are made the following month. The direct materials budget provides for purchases of $23,812 in February, $23,127 in March, $21,836 in April, and $28,173 in May. What is the balance in accounts payable for April 30, and May 31?

PB 11.

LO 7.4Prepare a flexible budgeted income statement for 47,000 units using the following information from a static budget for 45,000 units:

Sales price $50, Direct material per unit 12, Direct labor per unit 5, Variable manufacturing overhead per unit 3, Fixed manufacturing overhead 25,000, Variable sales and admin expenses per unit 3, Fixed sales and admin expenses 9,000, Taxes 15 percent of income before taxes.
PB 12.

LO 7.4Before the year began, the following static budget was developed for the estimated sales of 50,000. Sales are higher than expected and management needs to revise its budget. Prepare a flexible budget for 100,000 and 110,000 units of sales.

50,000 Units: Sales $1,250,000 less cost of goods sold: Direct material 450,000, Direct labor 500,000, Variable manufacturing overhead 125,000, Fixed manufacturing overhead 32,000 equals 1,107,000 cost of goods sold Equals Gross profit 143,000 Less Variable sales and admin expenses 50,000 and Fixed sales and admin expenses 105,000 equals Income before taxes (12,000) Less Taxes (1,800) equals Net Income $(10,200).
PB 13.

LO 7.4Artic Camping Gear’s currently sells 35,000 units at $73 per unit. Its expenses are as follows:

Direct material per unit $4, Direct labor per unit 7, Variable manufacturing overhead per unit 3, Variable sales and admin expenses per unit 1.50, Fixed manufacturing overhead 21,000, Fixed sales and admin expenses 89,000, Taxes 15 percent of income before taxes.

Management believes it can increase sales by 2,000 units for every $5 decrease in sales price. It also believes the additional sales will allow a decrease in direct material of $1 for each additional 2,000 units. Prepare a flexible budgeted income statement for 35,000-, 37,000-, and 39,000-unit sales.

PB 14.

LO 7.4Fruit Tea’s data show the following information:

August, September, October, November, December (respectively): Estimated sales (in units) 25,000, 25,000, 27,000, 27,500, 28,000; Sales price per unit $31, 31, 31, 31, 31; Direct labor per unit 1.75, 1.75, 1.50, 1.50, 1.50; Labor rate per hour $21, 21, 24, 24, 24.

New machinery will be added in October. This machine will reduce the labor required per unit and increase the labor rate for those employees qualified to operate the machinery. Finished goods inventory is required to be 20% of the next month’s requirements. Direct material requires 2.5 pounds per unit at a cost of $5 per pound. The ending inventory required for direct materials is 20% of the next month’s needs. In August, the beginning inventory is 3,750 units of finished goods and 13,125 pounds of materials. Prepare a production budget, direct materials budget, and direct labor budget for the first quarter of the year.

PB 15.

LO 7.4Identify the document that contains the information listed in these lines from the budgeted balance sheet shown.

  1. Accounts receivable
  2. Finished goods inventory
  3. Machinery
  4. Accumulated depreciation
  5. Notes payable
  6. Common stock
Assets: Cash $2,500,000; Accounts receivable 5,381,239 A; Raw materials inventory 3,149,183 Finished goods inventory 6,239,138 B; Equals Total current assets $17,269,560; Property, plant, and equipment: Computers $150,000, Machinery 9,745,231 C, less Accumulated Depreciation (5,385,733) D, equals Net Property, plant, and equipment 4,509,498 Equals Total assets $21,779,058; Liabilities: Accounts Payable $3,242,938; Notes payable 8,289,722 E Equals Total liabilities $11,532,660; Stockholders’ equity: Common stock $5,000,000 F, Retained earnings 5,246,398; Equals total stockholders’ equity $10,246,398; Total liabilities and stockholders’ equity $21,779,058.
PB 16.

LO 7.5Replenish sells shampoo that removes chlorine from hair. It prepared a static budget for the sales of 10,000 units. These variances were observed:

Actual Results and Variances, respectively: Sales $264,000, $66,000 Unfavorable; Variable expenses 70,500, 19,500 Favorable; Fixed expenses 70,270, 270 Unfavorable; Net income (loss) 123,230, 46,230 Unfavorable.

Determine the static budget and use the information to prepare a flexible budget and analysis for the 8,000 units actually sold.

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