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Chapter 16: Q1TI_4 (page 865)
Identify the following characteristics as primarily related to financial accounting (FA) or managerial accounting (MA):
4. Has a focus on the future.
The correct answer for this question managerial accounting.
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Calculating unit cost per service
Marx and Tyler provides hair-cutting services in the local community. In February, the business cut the hair of 190 clients, earned \(4,800 in revenues, and incurred the following operating costs:
Hair Supplies Expense \) 950
Wages Expense 548
Utilities Expense 190
Depreciation Expense—Equipment 60
What was the cost of service to provide one haircut?
Identifying ethical standards
The Institute of Management Accountants’ Statement of Ethical Professional Practice requires managerial accountants to meet standards regarding competence, confidentiality, integrity, and credibility. Consider the following situations. Which standard(s) is(are) violated in each situation?
a) You tell your brother that your company will report earnings significantly above financial analysts’ estimates.
Applying ethical standards
Ava Borzi is the new controller for Halo Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9% for the first time in the company’s five-year history. Busch explains that financial analysts have again predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He suggests that Borzi 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 \(18,000 in invoices until January 1.
b. Record as sales \)120,000 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’s sales are included in this year’s sales.
d. Reduce the estimated Bad Debts Expense from 3% of Sales Revenue to 2%, given the company’s 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’s creditors and stockholders?
3. What should Borzi do if Busch insists that she follow all of these suggestions?
Preparing a schedule of cost of goods manufactured and an income statement for a manufacturing company
Chewy Bones manufactures its own brand of pet chew bones. At the end of December 2018, the accounting records showed the following:
Balances: Beginning Ending
Direct Materials \( 13,400 \) 10,500
Work-in-Process Inventory 0 1,500
Finished Goods Inventory 0 5,400
Other information:
Direct materials purchases $ 39,000
Plant janitorial services 900
Sales salaries 5,100
Delivery costs 1,700
Net sales revenue 115,000
Utilities for plant 1,200
Rent on plant 9,000
Customer service hotline costs 1,600
Direct labor 16,000
Requirements
1. Prepare a schedule of cost of goods manufactured for Chewy Bones for the year ended December 31, 2018.
2. Prepare an income statement for Chewy Bones for the year ended December 31, 2018.
3. How does the format of the income statement for Chewy Bones differ from the income statement of a merchandiser?
4. Chewy Bones manufactured 17,500 units of its product in 2018. Compute the company’s unit product cost for the year, rounded to the nearest cent.
Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:
c. Cost of electricity at the paper mill
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