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In: Accounting

Charles Maxwell is starting a cheesecake bakery, Able Baker Charlie Company, to produce and sell different...

Charles Maxwell is starting a cheesecake bakery, Able Baker Charlie Company, to produce and sell different flavored cheesecakes to restaurants and the general public. He has just begun his study of accounting, and is a bit confused about the many types of reports he has read about and how they will help him run his business. He asks you to help him clarify what the differences between managerial accounting and financial accounting are. He’s also wondering how to set up his inventory, how to classify the costs of his business, and how to fill in some missing information.

Required:
1. Choose whether the characteristics on the Managerial vs. Financial panel are most often associated with managerial accounting or financial accounting.
2. Charles has provided some of the costs he expects to incur on the Cost Classification panel. Decide on the classifications that could be applied to each of these costs using the table provided. The cost object in each case is the cheesecake.
3. Charles found some sample income statements and balance sheets on the Internet, and asked which of them might be most appropriate for a manufacturing business like his. Review income statements A and B on the Income Statements panel, and balance sheets C and D on the Balance Sheets panel. Determine which income statement and balance sheet would be most appropriate for a manufacturing business like Able Baker Charlie. Then, on the Financial Statements panel, denote which income statement and balance sheet would be most appropriate for a manufacturing business.
4. At the end of February, after the second month of operations of Able Baker Charlie Company, Charles shows you the data he’s collected, but he was unable to figure out some of the amounts. On the Costs and Balances panel, determine the missing amounts. Note: It may be helpful to use T accounts to map the flow of the amounts through the manufacturing accounts and solve for the missing dollar values.

Managerial vs. Financial

Choose whether the following characteristics are most often associated with managerial accounting or financial accounting.

Managerial Accounting

Financial Accounting

Primarily used for internal decision making
Generally Accepted Accounting Principles (GAAP) must be used
Prepared statements usually pertain to the company as a whole rather than individual departments or products
Information provided will often be subjective, such as estimated future results
Often prepared on an as-needed basis rather than at fixed intervals
Use principles of the Sustainability Accounting Standards Board (SASB) to provide sustainability information to external financial statement users
Consideration of sustainability practices to contribute to the company’s long-term success
Using eco-efficiency measures to reduce expenses

Cost Classification

Charles has provided some of the costs he expects to incur as follows. Decide on the classifications that could be applied to each of these costs using the table provided. The cost object in each 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
Baker’s wages
Delivery driver wages
Depreciation of office computers
Power to run the cheesecake ovens
President’s salary
Sales commissions
Factory supervisor salary

Financial Statements

Charles found some sample income statements and balance sheets on the Internet, and asked which of them might be most appropriate for a manufacturing business like his. Review income statements A and B on the Income Statements panel, and balance sheets C and D on the Balance Sheets panel. Determine which income statement and balance sheet would be most appropriate for a manufacturing business like Able Baker Charlie Company.

Which income statement is most appropriate for a manufacturing business?

Income statement A

Income statement B

Which balance sheet is most appropriate for a manufacturing business?

Balance sheet C

Balance sheet D

Income Statements

Income Statement A (scroll down for Income Statement B):

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 Sheet D):

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

Stockholders’ Equity

11

Common stock

$19,000.00

12

Retained earnings

19,100.00

13

Total stockholders’ equity

38,100.00

14

Total liabilities and stockholders’ 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

Stockholders’ Equity

14

Common stock

$19,000.00

15

Retained earnings

19,100.00

16

Total stockholders’ equity

38,100.00

17

Total liabilities and stockholders’ equity

$55,900.00

Costs and Balances

At the end of February, after the second month of operations of Able Baker Charlie Company, Charles shows you the data he’s collected, but he was unable to figure out some of the amounts. Review the following data and fill in the missing amounts on the chart for Able Baker Charlie Company. Note: It may be helpful to use T accounts to map the flow of the amounts through the manufacturing accounts and solve for the missing dollar values. It may also be helpful to review the steps for determining the cost of materials used, total manufacturing cost incurred, and cost of goods manufactured.

Data for February
Decrease in materials inventory $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 labor incurred
Total manufacturing costs incurred in period $29,400
Total manufacturing costs incurred in period 70% of Cost of Goods Manufactured
Total manufacturing costs incurred in period $7,000 less than Cost of Goods Sold
Account

Account Balances

Costs Incurred

Jan. 31 Feb. 28
Materials Inventory Direct Materials Used
Work in Process Inventory $27,000 Direct Labor Incurred
Finished Goods Inventory $16,000 Factory Overhead Incurred
Cost of Goods Sold

Solutions

Expert Solution

Managerial Accounting Financial Accounting
Primarily used for internal decision making ?
Generally Accepted Accounting Principles (GAAP) must be used ?
Prepared statements usually pertain to the company as a whole rather than individual departments or products ?
Information provided will often be subjective, such as estimated future results ?
Often prepared on an as-needed basis rather than at fixed intervals ?
Use principles of the Sustainability Accounting Standards Board (SASB) to provide sustainability information to external financial statement users ?
Consideration of sustainability practices to contribute to the company’s long-term success ?
Using eco-efficiency measures to reduce expenses ?

2.

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 ? ? ? ?
Baker’s wages ? ? ? ?
Delivery driver wages ? ? ?
Depreciation of office computers ? ? ?
Power to run the cheesecake ovens ? ? ? ?
President’s salary ? ? ?
Sales commissions ? ? ?
Factory supervisor salary ? ? ? ?

3.

Which income statement is more appropriate for a manufacturing business

Income Statement A

Explanation:

Income statement B and Balance sheet C are more appropriate for a trading company.The income statement for a manufacturing company should have cost of good manufactured, which is included in the cost of goods sold.

Which Balance Sheet is more appropriate for manufacturing company.

Balance Sheet D

Explanation:

The balance sheet for a manufacturing company should have inventory items for raw material, work in proces and finished goods as the activites will leave some inventory at each stage of the manufacturing process.


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