SEU Businesses Have to Make Financial Decisions Daily Discussion: Accounting Answers 2021

SEU Businesses Have to Make Financial Decisions Daily Discussion: Accounting Answers 2021

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SEU Businesses Have to Make Financial Decisions Daily Discussion

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Managerial
Accounting
Carl S. Warren
Professor Emeritus of Accounting
University of Georgia, Athens
William B. Tayler
Brigham Young University
Australia ? Brazil ? Mexico ? Singapore ? United Kingdom ? United States
15e
Managerial Accounting, 15e
Carl S. Warren
William B. Tayler
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Cengage
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Printed in the United States of America
Print Number: 01
Print Year: 2018
Preface
Roadmap for Success
Warren/Tayler Managerial Accounting, 15e, provides a sound pedagogy for giving s? tudents a solid
foundation in managerial accounting. Warren/Tayler covers the fundamentals AND ?motivates students to learn by showing how accounting is important to businesses.
Warren/Tayler is successful because it reaches students with a combination of new and tried-andtested pedagogy.
This revision includes a range of new and existing features that help Warren/Tayler provide
?students with the context to see how accounting is valuable to business. These include:
?? New! Make a Decision section
?? New! Pathways Challenge
?? New! Certified Management Accountant (CMA?) Examination Questions
Warren/Tayler also includes a thorough grounding in the fundamentals that any business student
will need to be successful. These key features include:
?? Presentation style designed around the way students learn
?? Updated schema
?? At the start of each chapter, a schema, or roadmap, shows students what they are going to
learn and how it is connected to the larger picture. The schema illustrates how the chapter
content lays the foundation with managerial concepts and principles. Then it moves students
through developing the information and ultimately into evaluating and analyzing information
in order to make decisions.
Chapter
15
Statement
of Cash Flows
Principles
Chapter 1 Introduction to Managerial Accounting
Developing Information
COST SYSTEMS
Chapter 2
Chapter 3
Chapter 4
COST ALLOCATIONS
Chapter 5
Chapter 5
Job Order Costing
Process Costing
Support Departments
Joint Costs
Activity-Based Costing
Decision Making
PLANNING AND EVALUATING TOOLS
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Cost-Volume-Profit Analysis
Variable Costing
Budgeting Systems
Standard Costing and Variances
Decentralized Operations
STRATEGIC TOOLS
Chapter 12
Chapter 13
Chapter 13
Chapter 14
Chapter 14
Capital Investment Analysis
Lean Manufacturing
Activity Analysis
The Balanced Scorecard
Corporate Social Responsibility
Differential Analysis
Chapter 15
Financial
accounting
Statement
of Cash Flows
Managerial
accounting
Chapter 16
Financial Statement
Analysis
698
12020_ch15_rev02_698-757.indd 698
8/4/18 11:45 AM
iii
iv
Preface
312
Chapter 7 Variable Costing for Management Analysis
?? Link to the ?opening company? of each chapter
examples
how
the byconcepts
The $80,000calls
increaseout
in operating
income underof
Proposal
2 is caused
the allocation of the
fixed manufacturing costs of $400,000 over a greater number of units manufactured. Specifically,
introduced in the chapter are connected to the
opening
company.
This
shows
how
accountan increase in production from 20,000 units to 25,000 units means that the
fixed manufacturing
cost per unit decreases from $20 ($400,000 ? 20,000 units) to $16 ($400,000 ? 25,000 units). Thus,
ing is used in the real world by real companies.
the cost of goods sold when 25,000 units are manufactured is $4 per unit less, or $80,000 less in
total (20,000 units sold ? $4). Since the cost of goods sold is less, operating income is $80,000
more when 25,000 units rather than 20,000 units are manufactured.
Managers should be careful in analyzing operating income under absorption costing when finished goods inventory changes. Increases in operating income may be created by simply increasing finished goods inventory. Thus, managers could misinterpret such increases (or decreases) in
operating income as due to changes in sales volume, prices, or costs.
Adobe Systems Inc.
A
ssume that you have three different options for a summer job.
How would you evaluate these options? Naturally there are
many things to consider, including how much you could earn from
each job.
Determining how much you could earn from each job may
not be as simple as comparing the wage rate per hour. For example, a job as an office clerk at a local company pays $8 per hour. A
job delivering pizza pays $10 per hour (including estimated tips),
although you must use your own transportation. Another job working in a beach resort over 500 miles away from your home pays $8
per hour. All three jobs offer 40 hours per week for the whole summer. If these options were ranked according to their pay per hour,
the pizza delivery job would be the most attractive. However, the
costs associated with each job must also be evaluated. For example, the office job may require that you pay for downtown parking and purchase office clothes. The pizza delivery job will require
you to pay for gas and maintenance for your car. The resort job will
require you to move to the resort city and incur additional living
costs. Only by considering the costs for each job will you be able to
determine which job will provide you with the most income.
Just as you should evaluate the relative income of various
choices, a business also evaluates the income earned from its
choices. Important choices include the products offered and the
geographical regions to be served.
A company will often evaluate the profitability of products
and regions. For example, Adobe Systems Inc. (ADBE),
one of the largest software companies in the world, determines
the income earned from its various product lines, such as Acrobat?,
Photoshop?, Premiere?, and Dreamweaver? software. Adobe uses
this information to establish product line pricing, as well as sales,
support, and development effort. Likewise, Adobe evaluates the
income earned in the geographic regions it serves, such as the
United States, Europe, and Asia. Again, such information aids management in managing revenue and expenses within the regions.
In this chapter, how businesses measure profitability using
absorption costing and variable costing is discussed. After illustrating and comparing these concepts, how businesses use them for
controlling costs, pricing products, planning production, analyzing
market segments, and analyzing contribution margins is described
and illustrated.
Link to
Adobe Systems
Under variable costing, operating income is $200,000, regardless of whether 20,000 units or
25,000 units are manufactured. This is because no fixed manufacturing costs are allocated to the
units manufactured. Instead, all fixed manufacturing costs are treated as a period expense.
To illustrate, Exhibit 8 shows the variable costing income statements for Frand for the
production of 20,000 units, 25,000 units, and 30,000 units. In each case, the operating income
is $200,000.
Chapter 2
Pete Jenkins/AlAmy stock Photo
Exhibit 8
Variable Costing
Income Statements
for Three Production
Levels
52
Job Order Costing
In a recent absorption costing income statement, Adobe Systems reported (in millions) total revenue
of $5,854, cost of revenue of $820, gross profit of $5,034, operating expenses of $3,541, and operating
income of $1,493.
Frand Manufacturing Company
Variable Costing Income Statements
Sales (20,000 units ? $75) . . . . . . . . . . . . . . . .
Variable cost of goods sold:
Variable cost of goods manufactured:
(20,000 units ? $35) . . . . . . . . . . . . . . .
(25,000 units ? $35) . . . . . . . . . . . . . . .
(30,000 units ? $35) . . . . . . . . . . . . . . .
Ending inventory:
(0 units ? $35) . . . . . . . . . . . . . . . . . . . .
(5,000 units ? $35) . . . . . . . . . . . . . . . .
(10,000 units ? $35) . . . . . . . . . . . . . . .
Total variable cost of goods sold . . . . . .
Manufacturing margin. . . . . . . . . . . . . . . . . . .
Variable selling and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contribution margin. . . . . . . . . . . . . . . . . . . . .
Fixed costs:
Fixed manufacturing costs . . . . . . . . . . .
Fixed selling and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Total fixed costs . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . .
20,000 Units
Manufactured
25,000 Units
Manufactured
$1,500,000
$1,500,000
30,000 Units
Manufactured
$ 1,500,000
$ (700,000)
$ (875,000)
$(1,050,000)
0
175,000
$ (700,000)
$ 800,000
$ (700,000)
$ 800,000
350,000
$ (700,000)
$ 800,000
(100,000)
$ 700,000
(100,000)
$ 700,000
(100,000)
$ 700,000
no discrepancies, a journal entry is made to record the purchase. The journal
entry$ to
record$ (400,000)
the
$ (400,000)
(400,000)
supplier?s invoice related to Receiving Report No. 196 in Exhibit 4 is as follows:
(100,000)
(100,000)
(100,000)
Link to Adobe Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pages 305, 309, 312, 316, 319
$ (500,000)
$ 200,000
$ (500,000)
$ 200,000
$ (500,000)
$ 200,000
303
12020_ch07_ptg01_302-351.indd 303
A 5 L 1
1
1
a.
E
Materials
Accounts Payable
Materials purchased during December.
10,500
10,500
7/12/18 12:15 PM
The storeroom releases materials for use in manufacturing when a materials requisition is
received. Examples of materials requisitions are shown in Exhibit 4.
The materials requisitions for each job serve as the basis for recording materials used. For direct
materials, the quantities and amounts from the materials requisitions are posted to job cost sheets. Job
?? To
aid comprehension
and to demonstrate
themake
impact
journal
entriesledger.
include
cost
sheets,
which are also illustrated
in Exhibit 4,
up of
thetransactions,
work in process
subsidiary
the
net
effect
of
the
transaction
on
the
accounting
equation.
Exhibit 4 shows the posting of $2,000 of direct materials to Job 71 and $11,000 of direct
materials to Job 72.2 Job 71 is an order for 20 units of Jazz Series guitars, while Job 72 is an order
for 60 units of American Series guitars.
A summary of the materials requisitions is used as a basis for the journal entry recording the
materials used for the month. For direct materials, this entry increases (debits) Work in Process and
decreases (credits) Materials as follows:
12020_ch07_ptg01_302-351.indd 312
A 5 L 1
12
E
b.
Work in Process
Materials
Materials requisitioned to jobs
($2,000 + $11,000).
13,000
13,000
Many companies use computerized information processes to record the use of materials. In
such cases, storeroom employees electronically record the release of materials, which automatically updates the materials ledger and job cost sheets.
Ethics: Do It!
ETHICS
Phony
Invoice Scams
this information to create a fictitious invoice. The invoice
7/12/18 12:15 PM
Preface
?? Located in each chapter, Why It M
? atters shows students how accounting is important
to ?businesses with which they are familiar. A Concept Clip icon indicates which Why It
Matters features have an accompanying concept clip video in CNOWv2.
CONCEPT CLIP
476
Chapter 10
Evaluating Decentralized Operations
Why It Matters
CONCEPT CLIP
Coca-Cola Company: Go West Young Man
314
A
major decision early in the history of Coca-Cola (KO) was to exChapter 7 Variable Costing
for Management
pand
outside Analysis
of the United States to the rest of the world. As a result,
Coca-Cola
is known today the world over. What is revealing is how
Solution:
a. (1)
this
decision has impacted the revenues and profitability of Coca-Cola across
Absorption Costing Income Statements
(30,000 The
units produced
? $40 variable
its international and
North
following
table shows
Proposal 2: segments.
Proposal
1: American
manufacturing cost per unit) + $600,000
40,000 Units
30,000 Units
the percent of revenues
and percent
of operating
fixed cost income from the internaManufactured Manufactured
Sales (30,000 unitstional
? $100) and North American
$ 3,000,000 geographic
$ 3,000,000 segments.
(40,000 units produced ? $40 variable manufacturing
Cost of goods sold:
Cost of goods manufactured
Ending inventory
Total cost of goods sold
Gross profit
Selling and administrative expenses
Operating income
$(1,800,000)
?
$(1,800,000)
$ 1,200,000
(350,000)
$ 850,000
$(2,200,000)
550,000
$(1,650,000)
$ 1,350,000
(350,000)
$ 1,000,000
$(1,200,000)
$ 1,800,000
(210,000)
$ 1,590,000
$(1,200,000)
$ 1,800,000
(210,000)
$ 1,590,000
$ (600,000)
(140,000)
$ (740,000)
$ 850,000
$ (600,000)
(140,000)
$ (740,000)
$ 850,000
different story. More than 65% of Coca- Cola?s profitability comes
from international segments. Given the revenue segmentation,
this suggests that the international profit margins must be higher
than the North American profit margin. Indeed this is the case, as
can be seen in the following table:
Profit Margin
International average
North America
cost per unit) + $600,000 fixed cost
Operating
10,000 units (40,000 produced
? 30,000 sold)
? $55 per unit ($2,200,000 ? 40,000 units)
Revenues
Income
48.4%
24.2%
The average profit margin for all the international segments is
two times as large as the North American segment. These results
(2)
reflect the heart of the Coca-Cola marketing strategy. In internaVariable Costs
tional markets, Coca-Cola is able to charge relatively higher prices
Proposal 2:
Proposal 1:
due to high demand and less competition as compared to the North
Units 7 Variable
30,000 Units350 40,000
Chapter
Costing
Management
Analysis
30,000
units for
produced
? $40 variable
The first column
showsManufactured
that the international
provide
Manufactured
manufacturing costsegments
per unit
American market.
Sales (30,000 units ? $100)
2. units
Chassen
Company,
a cracker and cookie manufacturer, has the following unit costs for the
produced
? $40 variable
over 58% of the$ 3,000,000
revenues,$ 3,000,000
while North40,000
America
provides
almost
Variable cost of goods sold:
month
June:
manufacturing
costofper
unit
Variable cost of goods
$(1,200,000) However,
$(1,600,000)
Variable manufacturing
cost The Coca-Cola
$5.00
Source:
Company, Form 10-K for the Fiscal Year Ended December 31, 2017.
42%manufactured
of the revenues.
the 10,000
operating
income
a
units (40,000 produced
? 30,000 tells
Ending inventory
?
400,000
International segments
North American segment
Variable
Total Costing Income Statements
Total variable cost of goods sold
Manufacturing margin
Variable selling and administrative expenses
Contribution margin
Fixed costs:
Fixed manufacturing costs
Fixed selling and administrative expenses
Total fixed costs
Operating income
(30,000 units sold ? $7 variable selling cost per
unit) + $140,000
58.4%
41.6
100%
65.6%
34.4
100%
sold) ? $40 variable cost per unit
Variable marketing cost
Fixed manufacturing cost
Fixed marketing cost
3.50
2.00
4.00
30,000 units sold ? $7 variable
selling cost
unitof 100,000 units were manufactured during June, of which 10,000 remain in ending
A per
total
the only finished goods inventory at June 30. Under the absorption costing concept, the
Residualare Income
inventory. Chassen uses the first-in, first-out (FIFO) inventory method, and the 10,000 units
Fixed Costs
value of Chassen?s June 30 finished goods inventory would be:
?? New! Pathways Challenge encourages
students?
interest
in accounting
emphasizes of the return on investment.
Residual income
is useful
in overcoming
some of and
the disadvantages
a. $50,000.
b. $70,000.
Residual income
is
the
excess
of
operating
income
over
aChallenge
minimum acceptable operating income,
the
critical
thinking
aspect
of
accounting.
A
suggested
answer
to
the
Pathways
$85,000.
b. The difference (in a.) is caused by including $150,000 fixed manufacturing costs (10,000 units ? $15 fixedc.manufacturing
cost per unit) in the
d. $145,000. 7.
ending inventory, which decreases the cost of goods sold and increases theas
operating
income byin
$150,000.
shown
Exhibit
is provided at the end of the chapter. 3. Mill Corporation had the following unit costs for the recent calendar year:
Check Up Corner
Manufacturing
Nonmanufacturing
Pathways
Challenge
Exhibit
7
Variable
Fixed
$8.00
2.00
$3.00
5.50
Operating Inventory
income for Mill?s sole product totaled 6,000 units on January 1 and 5,200 units on
December 31. When
compared
to variable
income, Mill?s absorption costing income is:
Minimum acceptable
operating
income
ascosting
a
a. $2,400 lower.
Economic Activity
percent ofb.invested
assets
$2,400 higher.
Absorption costing is required by generally accepted accounting principles (GAAP) for reporting to exterc. $6,800 lower.
Residual
nal stakeholders. Thus, auto manufacturers like Ford
Motor income
Company (F) and General Motors
$ XXX
Residual
Income
This is
Accounting!
(XXX)
$ XXX
$6,800 higher.
Company (GM) use absorption costing in preparing their financiald.statements.
Under absorption costing,
fixed manufacturing costs are included in inventory. Thus, the4.
moreBethany
cars the auto
companies
lower
Company
hasmake,
just the
completed
the first month of producing a new product but has
the fixed cost per car and the smaller the cost of goods sold. In the years
preceding
the U.S.
and The product incurred variable manufacturing costs of
not yet
shipped
anyfinancial
of this crisis
product.
economic downturn of 2008, Ford and General Motors produced more
cars than were
to customers.1 costs of $2,000,000, variable marketing costs of $1,000,000,
$5,000,000,
fixedsold
manufacturing
Critical Thinking/Judgment
and fixed marketing costs of $3,000,000.
Under the variable costing concept, the inventory value of the new product would be:
The minimum acceptable operating income is computed by multiplying the company minimum
return on investment by the invested assets. The minimum rate is set by top management, based
d. $11,000,000.
on such factors
as theanswer
cost
ofof chapter.
financing.
Suggested
at end
Marielle Segarra, ?Why the Big Three Put Too Many Cars on the
CFO.com (ww2.cfo.com/management-accounting/2012/02/
ToLot,?illustrate,
assume that DataLink Inc. has establishe?

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