AFM102 Study Guide - Total Absorption Costing, Sunk Costs, Operating Leverage
Get access
Related Documents
Related Questions
I'll rate posting for sec times just do last parts likecost and balance sheet ( account balance and cost incurred ) that'sit ready question carefully then answer all last partthanks
Charles Maxwell is starting a cheesecake bakery, Able BakerCharlie Company, to produce and sell different flavored cheesecakesto restaurants and the general public. He has just begun his studyof accounting, and is a bit confused about the many types ofreports he has read about and how they will help him run hisbusiness. He asks you to help him clarify what the differencesbetween managerial accounting and financial accounting are. Heâsalso wondering how to set up his inventory, how to classify thecosts of his business, and how to fill in some missinginformation.
Required: | |
1. | Choose whether thecharacteristics on the Managerial vs. Financial panel are mostoften associated with managerial accounting or financialaccounting. |
2. | Charles has provided some ofthe costs he expects to incur on the Cost Classification panel.Decide on the classifications that could be applied to each ofthese costs using the table provided. The cost object in each caseis the cheesecake. |
3. | Charles found some sampleincome statements and balance sheets on the Internet, and askedwhich of them might be most appropriate for a manufacturingbusiness like his. Review income statements A and B on the IncomeStatements panel, and balance sheets C and D on the Balance Sheetspanel. Determine which income statement and balance sheet would bemost appropriate for a manufacturing business like Able BakerCharlie. Then, on the Financial Statements panel, denote whichincome statement and balance sheet would be most appropriate for amanufacturing business. |
4. | At the end of February, afterthe second month of operations of Able Baker Charlie Company,Charles shows you the data heâs collected, but he was unable tofigure out some of the amounts. On the Costs and Balances panel,determine the missing amounts. Note: It may behelpful to use T accounts to map the flow of the amounts throughthe manufacturing accounts and solve for the missing dollarvalues. |
Managerial vs. Financial
Choose whether the following characteristics are most oftenassociated with managerial accounting or financial accounting.
Managerial Accounting | Financial Accounting | ||
---|---|---|---|
Primarily used for internal decision making | |||
Generally Accepted Accounting Principles (GAAP) must beused | |||
Prepared statements usually pertain to the company as a wholerather than individual departments or products | |||
Information provided will often be subjective, such asestimated future results | |||
Often prepared on an as-needed basis rather than at fixedintervals | |||
Use principles of the Sustainability Accounting Standards Board(SASB) to provide sustainability information to external financialstatement users | |||
Consideration of sustainability practices to contribute to thecompanyâs long-term success | |||
Using eco-efficiency measures to reduce expenses |
Cost Classification
Charles has provided some of the costs he expects to incur asfollows. Decide on the classifications that could be applied toeach of these costs using the table provided. The cost object ineach case is the cheesecake.
Cost | Product | Period | Direct | Direct | Factory | Selling | Administrative | Direct | Indirect | Prime | Conversion | |
---|---|---|---|---|---|---|---|---|---|---|---|---|
Cost | Cost | Materials | Labor | Overhead | Expense | Expense | Cost | Cost | Cost | Cost | ||
Eggs used to make cheesecakes | ||||||||||||
Bakerâs wages | ||||||||||||
Delivery driver wages | ||||||||||||
Depreciation of office computers | ||||||||||||
Power to run the cheesecake ovens | ||||||||||||
Presidentâs salary | ||||||||||||
Sales commissions | ||||||||||||
Factory supervisor salary |
Financial Statements
Charles found some sample income statements and balance sheetson the Internet, and asked which of them might be most appropriatefor a manufacturing business like his. Review income statements Aand B on the Income Statements panel, and balance sheets C and D onthe Balance Sheets panel. Determine which income statement andbalance sheet would be most appropriate for a manufacturingbusiness like Able Baker Charlie Company.
Which income statement is most appropriate for a manufacturingbusiness?
Income statement A
Income statement B
Which balance sheet is most appropriate for a manufacturingbusiness?
Balance sheet C
Balance sheet D
Income Statements
Income Statement A (scroll down for Income StatementB):
Sample Company A |
Income Statement |
For the Year Ended December 31, 20Y8 |
1 | Sales | $42,000.00 | |
2 | Beginning finished goods inventory | $5,250.00 | |
3 | Plus cost of goods manufactured | 6,400.00 | |
4 | Cost of finished goods available for sale | $11,650.00 | |
5 | Less ending finished goods inventory | 400.00 | |
6 | Cost of goods sold | 11,250.00 | |
7 | Gross profit | $30,750.00 | |
8 | Operating expenses: | ||
9 | Selling expenses | $6,400.00 | |
10 | Administrative expenses | 5,250.00 | |
11 | Total operating expenses | 11,650.00 | |
12 | Net income | $19,100.00 |
Income Statement B:
Sample Company B |
Income Statement |
For the Year Ended December 31, 20Y8 |
1 | Sales | $42,000.00 | |
2 | Beginning merchandise inventory | $5,250.00 | |
3 | Plus net purchases | 6,400.00 | |
4 | Merchandise available for sale | $11,650.00 | |
5 | Less ending merchandise inventory | 400.00 | |
6 | Cost of merchandise sold | 11,250.00 | |
7 | Gross profit | $30,750.00 | |
8 | Operating expenses: | ||
9 | Selling expenses | $6,400.00 | |
10 | Administrative expenses | 5,250.00 | |
11 | Total operating expenses | 11,650.00 | |
12 | Net income | $19,100.00 |
Balance Sheets
Balance Sheet C (scroll down for Balance SheetD):
Sample Company C |
Balance Sheet |
December 31, 20Y8 |
1 | Assets | ||
2 | Cash | $20,800.00 | |
3 | Accounts receivable (net) | 10,000.00 | |
4 | Merchandise inventory | 6,000.00 | |
5 | Supplies | 2,100.00 | |
6 | Land | 17,000.00 | |
7 | Total assets | $55,900.00 | |
8 | Liabilities | ||
9 | Accounts payable | $17,800.00 | |
10 | Stockholdersâ Equity | ||
11 | Common stock | $19,000.00 | |
12 | Retained earnings | 19,100.00 | |
13 | Total stockholdersâ equity | 38,100.00 | |
14 | Total liabilities and stockholdersâ equity | $55,900.00 |
Balance Sheet D:
Sample Company D |
Balance Sheet |
December 31, 20Y8 |
1 | Assets | ||
2 | Cash | $20,800.00 | |
3 | Accounts receivable (net) | 10,000.00 | |
4 | Inventories: | ||
5 | Finished goods | $2,000.00 | |
6 | Work in process | 1,500.00 | |
7 | Materials | 2,500.00 | 6,000.00 |
8 | Supplies | 2,100.00 | |
9 | Land | 17,000.00 | |
10 | Total assets | $55,900.00 | |
11 | Liabilities | ||
12 | Accounts payable | $17,800.00 | |
13 | Stockholdersâ Equity | ||
14 | Common stock | $19,000.00 | |
15 | Retained earnings | 19,100.00 | |
16 | Total stockholdersâ equity | 38,100.00 | |
17 | Total liabilities and stockholdersâ equity | $55,900.00 |
Costs and Balances
At the end of February, after the second month of operationsof Able Baker Charlie Company, Charles shows you the data heâscollected, but he was unable to figure out some of the amounts.Review the following data and fill in the missing amounts on thechart for Able Baker Charlie Company. Note: It maybe helpful to use T accounts to map the flow of the amounts throughthe manufacturing accounts and solve for the missing dollar values.It may also be helpful to review the steps for determining the costof materials used, total manufacturing cost incurred, and cost ofgoods manufactured.
Data forFebruary | |
---|---|
Decrease in materialsinventory | $3,300 |
Materials inventory on Feb. 28 | 50% of materials inventory on Jan.31 |
Direct materials purchased | $12,600 |
Direct materials used | 3 times the direct laborincurred |
Total manufacturing costs incurredin period | $29,400 |
Total manufacturing costs incurredin period | 70% of Cost of GoodsManufactured |
Total manufacturing costs incurredin period | $7,000 less than Cost of GoodsSold |
Account | Account Balances | Costs Incurred | ||
---|---|---|---|---|
Jan.31 | Feb.28 | |||
Materials Inventory | DirectMaterials Used | |||
Work inProcess Inventory | $27,000 | DirectLabor Incurred | ||
FinishedGoods Inventory | $16,000 | FactoryOverhead Incurred | ||
Cost ofGoods Sold |
TufStuff, Inc., sells a wide range of drums, bins, boxes, andother containers that are used in the chemical industry. One of thecompanyâs products is a heavy-duty corrosion-resistant metal drum,called the WVD drum, used to store toxic wastes. Production isconstrained by the capacity of an automated welding machine that isused to make precision welds. A total of 2,500 hours of weldingtime is available annually on the machine. Because each drumrequires 0.8 hours of welding machine time, annual production islimited to 3,125 drums. At present, the welding machine is usedexclusively to make the WVD drums. The accounting department hasprovided the following financial data concerning the WVD drums: |
WVD Drums | |||
Selling price perdrum | $ | 169.00 | |
Cost per drum: | |||
Directmaterials | $46.20 | ||
Directlabor ($18 per hour) | 4.50 | ||
Manufacturing overhead | 4.85 | ||
Sellingand administrative expense | 17.10 | 72.65 | |
Margin per drum | $ | 96.35 | |
Management believes 3,625 WVD drums could besold each year if the company had sufficient manufacturingcapacity. As an alternative to adding another welding machine,management has considered buying additional drums from an outsidesupplier. Harcor Industries, Inc., a supplier of quality products,would be able to provide up to 2,000 WVD-type drums per year at aprice of $130 per drum, which TufStuff would resell to itscustomers at its normal selling price after appropriaterelabeling. |
Megan Flores, TufStuffâs production manager,has suggested that the company could make better use of the weldingmachine by manufacturing bike frames, which would require only 0.2hours of welding machine time per frame and yet sell for far morethan the drums. Megan believes that TufStuff could sell up to 3,500bike frames per year to bike manufacturers at a price of $75 each.The accounting department has provided the following dataconcerning the proposed new product: |
Bike Frames | |||
Selling price perframe | $ | 75.00 | |
Cost per frame: | |||
Directmaterials | $19.20 | ||
Directlabor ($18 per hour) | 22.50 | ||
Manufacturing overhead | 17.45 | ||
Sellingand administrative expense | 8.20 | 67.35 | |
Margin perframe | $ | 7.65 | |
The bike frames could be produced withexisting equipment and personnel. Manufacturing overhead isallocated to products on the basis of direct labor-hours. Most ofthe manufacturing overhead consists of fixed common costs such asrent on the factory building, but some of it is variable. Thevariable manufacturing overhead has been estimated at $1.22 per WVDdrum and $2.30 per bike frame. The variable manufacturing overheadcost would not be incurred on drums acquired from the outsidesupplier. |
Selling and administrative expenses areallocated to products on the basis of revenues. Almost all of theselling and administrative expenses are fixed common costs, but ithas been estimated that variable selling and administrativeexpenses amount to $1.02 per WVD drum whether made or purchased andwould be $2.10 per bike frame. |
All of the companyâs employeesâdirect andindirectâare paid for full 40-hour workweeks and the company has apolicy of laying off workers only in major recessions.
|