In: Accounting
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 |
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.