Chapters 18, 19, 20

Question 1

Chapter 18

What are the major differences between managerial accounting and financial accounting?

Answer 1

Financial Accounting is information that is reported at fixed intervals (monthly, quarterly, yearly) in general purpose financial statements.

• Reviewed by Executives, Managers, Creditors, Shareholders, Government agencies
• Primarily used to plan, direct and control business operations

Managerial Accounting- to meet specific needs of a company’s management
-Includes historical data (for past operations-objective measures) estimated data (subjective for future decisions subjective estimates)

Question 2

What is the difference between product cost and period costs?

Answer 2

Product Costs- manufacturing cost, direct materials, direct labor and factory overhead
Period Costs- selling and administrative expenses
Selling expenses- is marketing and delivering product to customers
Administrative Expenses- Incurred in managing the company expenses

Question 3

Name the three inventory accounts for manufacturing business, and describe what each balance represents at the end of an accounting period.

Answer 3

1. Materials Inventory- consists of the costs of the direct and indirect materials that have not entered the manufacturing process
2. Work in Process Inventory-consists of the direct materials , direct labor and factory overhead costs for product that have entered the manufacturing process but not completed
3. Finished Goods Inventory- consists of completed or finished products that have not been sold

Question 4

Chapter 19

What kind of firm would use a job order cost system?

Answer 4

Job order costing is used by firms that sell custom goods and services to customers. The job order system is frequently associated with firms that will produce a product or service specifically to a custom order.

Question 5

What is a job cost sheet?

Answer 5

A job cost sheet is the subsidiary ledger to the work in process control account. The cost of materials, labor, and overhead are listed on the job cost sheet for each job. A summary of all the job cost sheets during an accounting period is the basis for journal entries to the control accounts.

Question 6

Discuss how the predetermined factory overhead can be used in a job order cost accounting to assist management and pricing jobs?

Answer 6

The use of a predetermined factory overhead rate in job order cost accounting assists management in pricing jobs. By estimating the cost of direct materials and direct labor based on past experience and by applying the factory overhead rate, the cost of a job can be estimated. The pre-determined rate also permits the determination of the cost of a job shortly after it is finished, which enables management to adjust future pricing policies to achieve the best combination of revenue and expense.

Question 7

Chapter 20

Why is the cost per equivalent unit determined separately for direct materials and conversion costs?

Answer 7

The cost per equivalent unit is frequently determined separately for direct materials and conversion costs because these two costs are frequently incurred at different rates in the production process. For example, materials may be incurred entirely at the beginning of the process, while conversion costs are typically incurred evenly throughout the process.

Question 8

What is the purpose for determining the cost per equivalent unit?

Answer 8

The cost per equivalent unit is used to allocate direct materials and conversion costs between completed and partially completed units.

Question 9

How are costs of production reports used for controlling and improving operations?

Answer 9

Cost of production reports can provide detailed data about the process. The reports can provide information on the department by individual cost elements. This can enable management to investigate problems and opportunities.

Question 10

Journal Entries pg.924,925

Purchased materials, including milk, cream, sugar, packaging, and indirect materials on account, $88,000.

Answer 10

Materials 88,000

Accounts Payable 88,000

Question 11

The Mixing Department requisitioned milk, cream, and sugar, $66,000. This is the amount indicated on page 914. Packaging materials of $8,000 were requisitioned by the Packaging Department. Indirect materials for the Mixing and Packaging departments were $4,125 and $3,000, respectively.

Answer 11

Work in Process-Mixing        66,000
Work in Process-Packaging    8,000
Factory Overhead-Mixing        4,125
Factory Overhead-Packaging  3,000
          Materials                                    81,125

Question 12

Incurred direct labor in the Mixing and Packaging departments of $10,500 and $12,000, respectively.

Answer 12

Work in Process-Mixing 10,500
Work in Process-Packaging 12,000
Wages Payable 22,500

Question 13

Recognized equipment depreciation for the Mixing and Packaging departments of $3,350 and $1,000, respectively.

Answer 13

Factory Overhead-Mixing 3,350
Factory Overhead-Packaging 1,000
Accumulated Depreciation-Equipment 4,350

Question 14

Applied factory overhead to Mixing and Packaging departments of $7,275 and $3,500, respectively.

Answer 14

Work in Process-Mixing 7,275
Work in Process-Packaging 3,500
Factory Overhead-Mixing 7,275
Factory Overhead-Packaging 3,500

Question 15

Transferred costs of $86,475 from the Mixing Department to the Packaging Department per the cost of production report in Exhibit 7.

Answer 15

Work in Process-Packaging 86,475

Work in Process-Mixing 86,475

Question 16

Transferred goods of $106,000 out of the Packaging Department to Finished Goods according to the Packaging Department cost of production report (not illustrated).

Answer 16

Finished Goods-Ice Cream 106,000

Work in Process-Packaging 106,000

Question 17

Recorded cost of goods sold out of the finished goods inventory of $107,000.

Answer 17

Cost of Goods Sold 107,000

Finished Goods-Ice Cream 107,000