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Chapter 16: Q16-5SE-g (page 886)
Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:
g. Depreciation on the manufacturing plant.
The depreciation of the manufacturing plant comes under the product cost.
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Explain the difference between line positions and staff positions.
ABC Manufacturing Company has the following data for 2019 (amounts in millions):
Direct Materials, January 1 $ 5
Direct Materials, December 31 7
Work-in-Process Inventory, January 1 12
Work-in-Process Inventory, December 31 16
Finished Goods Inventory, January 1 8
Finished Goods Inventory, December 31 6
Direct Materials Purchased, including Freight In 25
Direct Labor 36
Manufacturing Overhead 17
Prepare the schedule of cost of goods manufactured and the cost of goods sold section of the income statement for the year ended December 31, 2019.
Winnebago Industries, Inc. is a leading manufacturer of recreational vehicles (RVs), including motorized and towable products. The company designs, develops, manufactures, and markets RVs as well as supporting products and services. The RVs are sold to consumers through a dealer network. On the August 29, 2015, balance sheet, Winnebago reported inventory of approximately \(112 million. Of this amount, approximately \)12 million, about 11%, was Finished Goods Inventory (Notes to Consolidated Financial Statements, Note 3). Suppose Winnebago motor homes have an average sales price of $96,000 and cost of goods sold is 89% of sales. Thor Industries, Inc., a major competitor, has an average cost of goods sold of 86% of sales. For year ending August 29, 2015, Winnebago sold 9,097 motor homes (Form 10-K, Item 1 Business).
Requirements
1. Why would the Finished Goods Inventory be such a relatively small portion of total inventory?
2. What is the average cost of goods sold (in dollars) for a Winnebago motor home? What is the average gross profit?
3. If Winnebago could reduce production costs so that the average cost of goods sold is equal to their competitor鈥檚 average cost of goods sold, how much more profit would Winnebago earn on each motor home sold?
4. Based on 2015 sales, how much would operating income increase if the company reduced the average cost of goods sold to equal their competitor鈥檚 average cost of goods sold?
5. How could managers at Winnebago use managerial accounting to reduce costs and increase profits?
Question:Applying ethical standards
Natalia Wallace is the new controller for Smart Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the company鈥檚 five-year history. Cauvet explains that financial analysts have again predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing \(13,000 in invoices until January 1.
b. Record as sales \)115,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of the next year鈥檚 sales are included in this year鈥檚 sales.
d. Reduce the estimated Bad Debts Expense from 5% of Sales Revenue to 3%, given the company鈥檚 continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. How might these inconsistencies affect the company鈥檚 creditors and stockholders?
3. What should Wallace do if Cauvet insists that she follow all of these suggestions?
Comparing managerial accounting and financial accounting
Match the following terms to the appropriate statement. Some terms may be used more than once, and some terms may not be used at all.
Directing Managerial
Creditors Managers
Controlling Planning
Financial Stockholders
a. Accounting systems that must follow GAAP.
b. External parties for whom financial accounting reports are prepared.
c. The role managers play when they are monitoring day-to-day operations and keeping the company on track.
d. Internal decision makers.
e. Accounting system that provides information on a company鈥檚 past performance.
f. Accounting system not restricted by GAAP.
g. The management function that involves choosing goals and deciding how to achieve them
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