ACTG 2011 Chapter Notes - Chapter 7: Cash Flow, Inventory Turnover, Accounts Payable

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emeraldlouse520

3 Oct 2014

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Essential to know value of inventory on hand and cost of inventory sold when we do not know the cost of the specific inventory sold/used. Inventory must be valued at cost on the balance sheet. Lowe of cost and nrv: if net realizable value is less than cost, inventory is written down to nrv. Must include all costs incurred to ready the inventory for sale/use; purchase price, import duties, taxes, shipping and handling, and other costs directly related to purchase of inventory. Must include cost of labour directly used to produce the product plus allocation of overhead. Overhead: costs in manufacturing process other than direct labour and materials. Following costs are to be excluded: storage, administration, selling and marketing, and waste. Goods on consignment reported in inventory of the manufacturer/distributor, and not in inventor of the seller (party that has possession of the inventory) Goods in transit included in inventory of the buyer if title has transferred.

Related Questions

1.) When products held in inventory are sold:

A.)Cost of Goods Sold is credited.

B.)Work in Process Inventory is credited.

C.)Finished Goods Inventory is credited.

D.)Finished Goods Inventory is debited.

2.)Since manufacturing costs (direct materials, direct labor,and overhead) are incurred in the process of manufacturing units ofproduct, these costs are credited t

A.)	The Direct Materials Inventory, Direct Labor, and ManufacturingOverhead accounts respectively.
B.)	Liability accounts.
C.)	The Work in Process Inventory account.
D.)	The Cost of Goods Sold account.

3.)Management accounting systems are designed to assistorganizations in the performance of all of the following functionsexcept:

A.)	The assignment of decision-making authority over companyassets.
B.)	Planning and decision-making.
C.)	Monitoring, evaluating, and rewarding performance.
D.)	The preparation of income tax returns.

4.)In a schedule of cost of finished goods manufactured, thefigure for total manufacturing costs:

	A.) May be less than the cost of direct materials used.
	B.) May be less than the direct labor costs assigned toproduction.
	C.) May be less than the manufacturing overhead applied toproduction.
	D.) May be less than the cost of finished goodsmanufactured.

5.) When a manufacturing company purchases raw materials orcomponent parts to be used in manufacturing finished goods, thesecosts are initially debited to:

	A.) Expense accounts.
	B.) Raw Materials Inventory.
	C.) Finished Goods Inventory.
	D.) Manufacturing Overhead.

6.) The wages paid to employees working directly on a company'sproducts would be shown as a:

	A.) Credit to Direct Labor.
	B.) Debit to Direct Labor.
	C.) Credit to Work in Process.
	D.) Debit to Manufacturing Overhead.

7.) Amounts credited to the Work in Process inventory accountmay best be described as:

	A.) The cost of finished goods manufactured.
	B.) Total manufacturing costs charged to production.
	C.) The cost of goods sold.
	D.) Direct materials purchased, direct labor costs paid, andpayments for items classified as manufacturing overhead.

chocolatetiger413

Required information

[The following information applies to the questions displayed below.]

Sierra Company manufactures woven blankets and accounts for product costs using process costing. Data below are for one of its processing departments. The following information is available regarding its May inventories

	Beginning Inventory		Ending Inventory
Raw materials inventory	$	65,000	$	77,000
Work in process inventory		441,500		555,000
Finished goods inventory		632,000		517,000

The following additional information describes the company's production activities for May.


Raw materials purchases (on credit)	$	250,000
Factory wages cost (paid in cash)		1,562,000
Other overhead cost (Other Accounts credited)		38,000
Materials used
Direct	$	158,000
Indirect		80,000
Labor used
Direct	$	800,000
Indirect		762,000
Overhead rate as a percent of direct labor		110	%
Sales (on credit)	$	3,500,000

The predetermined overhead rate was computed at the beginning of the year as 110% of direct labor cost.

1. Compute the cost of products transferred from production to finished goods and cost of goods sold.

Raw Materials (RM)	Work in Process (WIP)






Factory Wages Payable	Finished Goods (FG)





Factory Overhead	Income Statement (Partial)


		$0


	Cost of goods transferred
	Cost of goods sold

ceriseplatypus220

The following accounting events affected Nelson ManufacturingCompany during its first three years of operation. Assume that alltransactions are cash transactions.

Transactions for 2013

1.	Startedmanufacturing company by issuing common stock for $3,700.
2.	Purchased $1,290of direct raw materials.
3.	Used $770 ofdirect raw materials to produce inventory.
4.	Paid $400 ofdirect labor wages to employees to make inventory.
5.	Applied $340 ofmanufacturing overhead cost to Work in Process Inventory.
6.	Finished work oninventory that cost $940.
7.	Sold goods thatcost $670 for $1,150.
8.	Paid $380 forselling and administrative expenses.
9.	Actualmanufacturing overhead cost amounted to $220 for the year.

Transactions for 2014

1.	Acquiredadditional $1,100 of cash from common stock.
2.	Purchased $1,220of direct raw materials.
3.	Used $1,200 ofdirect raw materials to produce inventory.
4.	Paid $550 ofdirect labor wages to employees to make inventory.
5.	Applied $300 ofmanufacturing overhead cost to Work in Process Inventory.
6.	Finished work oninventory that cost $1,860.
7.	Sold goods thatcost $1,540 for $2,890.
8.	Paid $440 forselling and administrative expenses.
9.	Actualmanufacturing overhead cost amounted to $340 for the year.

Transactions for 2015

1.	Paid a cashdividend of $800.
2.	Purchased $1,430of direct raw materials.
3.	Used $1,150 ofdirect raw materials to produce inventory.
4.	Paid $370 ofdirect labor wages to employees to make inventory.
5.	Applied $310 ofmanufacturing overhead cost to work in process.
6.	Finished work oninventory that cost $2,040.
7.	Sold goods thatcost $2,290 for $3,580.
8.	Paid $690 forselling and administrative expenses.
9.	Annualmanufacturing overhead costs were $230 for the year.

a. prepare an income statement, and a balance sheet as of theclose of business on December 31, 2013, 2014 and 2015. (table mustbe fixed and adjusted for correctness)

NELSONMANUFACTURING COMPANY
FinancialStatements
	2013	2014	2015
Income Statements
Salesrevenue
Costof goods sold
Grossmargin	0	0	0
Selling and administrative expense
Netincome	$0	$0	$0

Balance Sheets
Assets
Cash
Raw materials inventory



Total Assets	$0	$0	$0
Equity
Common stock
Retained earnings

Total Equity	$0	$0	$0

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ACTG 2011 Chapter Notes - Chapter 7: Cash Flow, Inventory Turnover, Accounts Payable

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