Solutions Manual Vol.

II, Financial and Managerial Accounting 13/e, Williams et al 23

CHAPTER 16
MANAGEMENT ACCOUNTING:
A BUSINESS PARTNER
24 The McGraw-Hill Companies, Inc., 2005
SOLUTIONS TO EXERCISES
Ex. 161 a. Management accounting
b. Manufacturing overhead
c. None (These are prime costs.)
d. None (The statement describes direct manufacturing costs.)
e. Work in Process Inventory
f. Cost of finished goods manufactured
g. Period costs

Ex. 162 a. Direct materials
b. Either direct labor or manufacturing overhead (If every automobile produced is sub-
ject to the same testing before it is released to dealers, this cost is an element of direct
labor. If testing is on a sample basis, it might be appropriate to consider this a part of
manufacturing overhead.)
c. Manufacturing overhead
d. Direct materials
e. Direct labor
f. Manufacturing overhead
g. Manufacturing overhead
h. Manufacturing overhead

Ex. 163 a. Indirect product cost
b. Direct product cost
c. Period cost
d. Period cost
e. Indirect product cost
f. Period cost
g. Indirect product cost
h. Period cost

Ex. 164 Work in process inventory, beginning of the year ................................................... $ 35,000
Manufacturing costs applied to production:
Direct materials used .......................................................................... $ 245,000
Direct labor ......................................................................................... 120,000
Manufacturing overhead ................................................................... 300,000
Total manufacturing costs ................................................................................. 665,000
Total cost of all goods in process during the year .................................................... $ 700,000
Less: Cost of finished goods manufactured .............................................................. 675,000
Work in process inventory, end of the year ............................................................. $ 25,000


Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 25
Ex. 165 a. NuTronics, Inc.
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31, 2005
Work in process, January 1, 2005 ...................................................................... $ 12,000
Manufacturing costs assigned to production:
Direct materials used ................................................................... $ 210,000
Direct labor ................................................................................... 120,000
Manufacturing overhead ............................................................. 192,000
Total manufacturing costs ........................................................................... 522,000
Total cost of all goods in process during the year ............................................. $ 534,000
Less: Work in process inventory, December 31, 2005 ...................................... 8,000
Cost of finished goods manufactured ................................................................. $ 526,000
b. $26.30 per unit ($526,000 cost of finished goods manufactured, divided by 20,000
units)

Ex. 166 a. Direct materials inventory, Jan. 1 ...................................................................... $ 8,700
Direct materials purchased ............................................................................. 25,750
Less: Direct materials used in production ..................................................... (26,000)
Direct materials inventory, Jan. 31 .................................................................... $ 8,450

Work in process inventory, Jan. 1 ...................................................................... $ 76,500
Direct materials used ....................................................................................... 26,000
Direct labor used .............................................................................................. 42,000
Manufacturing overhead applied ................................................................... 32,400
Less: Finished goods transferred out ............................................................. (69,000)
Work in process inventory, Jan. 31 .................................................................... $107,900

Finished goods inventory, Jan. 1......................................................................... $ 53,000
Cost of finished goods transferred in ............................................................. 69,000
Less: Cost of goods sold ................................................................................... (89,000)
Finished goods inventory, Jan. 31....................................................................... $ 33,000

b. Manufacturing overhead, Jan. 1 ......................................................................... $ 0
Indirect materials purchased .......................................................................... 3,500
Supervisor salaries ........................................................................................... 12,000
Indirect labor costs .......................................................................................... 3,000
Depreciation...................................................................................................... 4,500
Factory utilities................................................................................................. 7,800
Factory insurance ............................................................................................. 4,200
Property taxes on factory ................................................................................ 3,000
Less: Manufacturing overhead applied ......................................................... (32,400)
Manufacturing overhead, Jan. 31 ....................................................................... $ 5,600

26 The McGraw-Hill Companies, Inc., 2005
c. Operating income for the month of January:
Revenues ........................................................................................................... $165,000
Cost of goods sold ............................................................................................. (89,000)
Gross profit ....................................................................................................... 76,000
Operating expenses:
Sales commissions .................................................................... $16,500
Advertising expense ................................................................. 6,300 (22,800)
Operating income ................................................................................................. $ 53,200

Ex. 167 The answer to this question depends upon ones interpretation of the word manipulate.
It is common practice to manipulate managerial reports in order to make them more
useful for decision making purposes. However, if reports are manipulated in order to
change their underlying meaning (e.g., for personal gain or to exploit others), such behav-
ior is unethical.
Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 27
SOLUTIONS TO PROBLEMS
20 Minutes, Easy
PROBLEM 161
AQUA-MARINE
a. Computations of amounts:
(1) Average per-unit manufacturing cost:
Cost of finished goods manufactured $ 7 2 8 0 0 0
Number of completed units manufactured 1 1 2
Average cost per unit ($728,000 112 units) $ 6 5 0 0
(2) Ending materials inventory:
Direct materials purchased $ 2 2 5 0 0 0
Less: Direct materials used in production 2 1 6 0 0 0
Materials inventory, end of year $ 9 0 0 0
Ending work in process inventory:
Manufacturing costs charged to work in process:
Direct materials used $ 2 1 6 0 0 0
Direct labor assigned to production 2 0 0 0 0 0
Manufacturing overhead 3 5 0 0 0 0
Total manufacturing costs $ 7 6 6 0 0 0
Less: Cost of finished goods manufactured 7 2 8 0 0 0
Work in process inventory, end of year $ 3 8 0 0 0
Ending finished goods inventory:
Average per-unit manufacturing cost [part (1) ] $ 6 5 0 0
Number of finished goods in inventory (112 manufactured,
less 100 sold) 1 2
Ending inventory of finished goods (12 units $6,500 per unit) $ 7 8 0 0 0
(3) Cost of goods sold:
Number of units sold 1 0 0
Average per-unit manufacturing cost [part (1) ] $ 6 5 0 0
Cost of goods sold (100 units $6,500 per unit) $ 6 5 0 0 0 0
Alternative computation:
Cost of finished goods manufactured $ 7 2 8 0 0 0
Less: Ending inventory of finished goods [part (2) ] 7 8 0 0 0
Cost of goods sold $ 6 5 0 0 0 0

28 The McGraw-Hill Companies, Inc., 2005

PROBLEM 161
AQUA-MARINE (concluded)
b. Comments on deducting manufacturing costs from revenue:
Nothe entire $775,000 in manufacturing costs is not deducted from the revenue of the current
year. Manufacturing costs are product costs, not period costs. Product costs are viewed as the cost
of creating inventory, not as expenses of the current period. If the inventory remains on hand at
the end of the period, the product costs appear in the balance sheet as the cost of this inventory.
When the units are sold, the product costs are deducted from the related sales revenue as the cost
of goods sold. This accomplishes the objective of matching revenue with the related costs and
expenses of generating that revenue.
The disposition of the $775,000 in manufacturing costs incurred during the year is summarized
below:
Total manufacturing costs incurred during the year ....................................................... $ 775,000
Less: Amounts representing inventory at year-end:
Materials inventory ......................................................................................... $ 9,000
Work in process inventory .............................................................................. 38,000
Finished goods inventory ................................................................................ 78,000 125,000
Manufacturing costs deducted from revenue (cost of goods sold) ...................................... $ 650,000

Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 29
15 Minutes, Easy
PROBLEM 162
ROAD RANGER CORPORATION
a. Total manufacturing costs assigned to work in process:
Direct materials used $ 7 5 0 0 0 0
Direct labor applied to production 9 0 0 0 0 0
Manufacturing overhead 1 8 0 0 0 0 0
Total manufacturing costs assigned to work in process $ 3 4 5 0 0 0 0
b. Cost of finished goods manufactured:
Cost per completed motor home $ 6 0 0 0 0
Number of motor homes completed during the year 5 0
Cost of finished goods manufactured (50 units $60,000 per unit) $ 3 0 0 0 0 0 0
c. Cost of goods sold:
Cost per completed motor home $ 6 0 0 0 0
Number of completed motor homes sold 4 8
Cost of goods sold (48 units $60,000 per unit) $ 2 8 8 0 0 0 0
d. Gross profit on sales:
Sales ($95,000 average sales price 48 units sold) $ 4 5 6 0 0 0 0
Less: Cost of goods sold (c) 2 8 8 0 0 0 0
Gross profit on sales $ 1 6 8 0 0 0 0
e. (1) Ending inventory of work in process:
Total manufacturing costs assigned to work in process (a) $ 3 4 5 0 0 0 0
Less: Cost of finished goods manufactured (b) 3 0 0 0 0 0 0
Ending inventory of work in process $ 4 5 0 0 0 0
(2) Ending inventory of finished goods:
Cost of finished goods manufactured (b) $ 3 0 0 0 0 0 0
Less: Cost of goods sold (c) 2 8 8 0 0 0 0
Ending inventory of finished goods $ 1 2 0 0 0 0
(Alternative computation of ending inventory of finished goods: Finished units
on hand, 2, times unit cost, $60,000, equals $120,000)

30 The McGraw-Hill Companies, Inc., 2005
20 Minutes, Easy
PROBLEM 163
SUPERIOR LOCKS, INC.
a. Purchases of direct materials $ 2 6 9 0 0 0
b. Cost of direct materials used:
Materials inventory, beginning of year $ 1 3 0 0 0
Purchases of direct materials 2 6 9 0 0 0
Cost of materials available for use $ 2 8 2 0 0 0
Less: Materials inventory, end of year 1 7 0 0 0
Cost of direct materials used $ 2 6 5 0 0 0
c. Direct labor costs assigned to production $ 1 3 4 0 0 0
d. Year-end liability for direct wages payable $ 2 7 0 0
e. Total manufacturing costs:
Direct materials used (part b) $ 2 6 5 0 0 0
Direct labor costs 1 3 4 0 0 0
Manufacturing overhead 2 1 4 4 0 0
Total manufacturing costs $ 6 1 3 4 0 0
f. Cost of finished goods manufactured $ 6 1 4 4 0 0
g. Ending inventory of work in process:
Work in process inventory, beginning of year $ 1 9 0 0 0
Total manufacturing costs (part e) 6 1 3 4 0 0
Cost of all goods in process during the year $ 6 3 2 4 0 0
Less: Cost of finished goods manufactured 6 1 4 4 0 0
Work in process inventory, end of year $ 1 8 0 0 0
h. Cost of goods sold:
Beginning inventory of finished goods $ 4 6 0 0 0
Cost of finished goods manufactured 6 1 4 4 0 0
Cost of goods available for sale $ 6 6 0 4 0 0
Less: Ending inventory of finished goods 5 3 4 0 0
Cost of goods sold $ 6 0 7 0 0 0
i. Total inventory at year-end:
Materials $ 1 7 0 0 0
Work in process (part g) 1 8 0 0 0
Finished goods 5 3 4 0 0
Total inventory $ 8 8 4 0 0

Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 31
20 Minutes, Easy
PROBLEM 164
GRONBACK CORPORATION
a. Purchases of direct materials $ 3 4 5 0 0 0
b. Direct materials used:
Materials inventory, beginning of year $ 1 6 0 0 0
Purchases of direct materials 3 4 5 0 0 0
Cost of direct materials available for use $ 3 6 1 0 0 0
Less: Materials inventory, end of year 1 3 0 0 0
Cost of direct materials used $ 3 4 8 0 0 0
c. Direct labor payrolls paid during the year $ 2 0 6 0 0 0
d. Direct labor costs assigned to production $ 2 1 0 0 0 0
e. Direct materials used (part b) $ 3 4 8 0 0 0
Direct labor costs assigned to production 2 1 0 0 0 0
Manufacturing overhead applied to production 3 9 9 0 0 0
Total manufacturing costs charged to work in process $ 9 5 7 0 0 0
f. Cost of finished goods manufactured:
Work in process inventory, beginning of year $ 2 1 0 0 0
Total manufacturing costs (part e) 9 5 7 0 0 0
Cost of all goods in process during the year $ 9 7 8 0 0 0
Less: Work in process inventory, end of year 2 7 0 0 0
Cost of finished goods manufactured $ 9 5 1 0 0 0
g. Cost of goods sold:
Beginning inventory of finished goods $ 1 0 6 0 0 0
Cost of finished goods manufactured (part f) 9 5 1 0 0 0
Cost of goods available for sale $ 1 0 5 7 0 0 0
Less: Ending inventory of finished goods 1 1 8 0 0 0
Cost of goods sold $ 9 3 9 0 0 0
h. Total inventory at year-end:
Materials inventory $ 1 3 0 0 0
Work in process inventory 2 7 0 0 0
Finished goods inventory 1 1 8 0 0 0
Total inventory $ 1 5 8 0 0 0

32 The McGraw-Hill Companies, Inc., 2005
35 Minutes, Medium
PROBLEM 165
HILLSDALE MANUFACTURING
a. (1) Direct materials purchased $ 4 1 0 0 0 0
(2) Direct materials used:
Materials inventory, beginning of year $ 2 2 0 0 0
Purchases of direct materials 4 1 0 0 0 0
Cost of direct materials available for use $ 4 3 2 0 0 0
Less: Materials inventory, end of year 2 6 0 0 0
Cost of direct materials used $ 4 0 6 0 0 0
(3) Payments of direct labor payrolls $ 1 8 9 0 0 0
(4) Direct labor cost assigned to production $ 1 9 2 0 0 0
(5) Total manufacturing costs:
Direct materials used [part a(2)] $ 4 0 6 0 0 0
Direct labor cost 1 9 2 0 0 0
Manufacturing overhead 3 9 3 6 0 0
Total manufacturing costs $ 9 9 1 6 0 0
(6) Cost of finished goods manufactured:
Work in process inventory, beginning of year $ 5 0 0 0
Total manufacturing costs [part a(5)] 9 9 1 6 0 0
Cost of all goods in process during the year $ 9 9 6 6 0 0
Less: Work in process inventory, end of year 9 0 0 0
Cost of finished goods manufactured $ 9 8 7 6 0 0
(7) Cost of goods sold:
Beginning inventory of finished goods $ 3 8 0 0 0
Cost of finished goods manufactured [part a(6)] 9 8 7 6 0 0
Cost of goods available for sale $ 1 0 2 5 6 0 0
Less: Ending inventory of finished goods 2 5 0 0 0
Cost of goods sold $ 1 0 0 0 6 0 0
(8) Total inventory:
Materials inventory $ 2 6 0 0 0
Work in process inventory 9 0 0 0
Finished goods inventory 2 5 0 0 0
Total inventory $ 6 0 0 0 0

Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 33

PROBLEM 165
HILLSDALE MANUFACTURING (concluded)
b. HILLSDALE MANUFACTURING CORP.
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31, 20__
Work in process inventory, beginning of year $ 5 0 0 0
Manufacturing costs assigned to production:
Direct materials used [part a(2) ] $ 4 0 6 0 0 0
Direct labor 1 9 2 0 0 0
Manufacturing overhead 3 9 3 6 0 0
Total manufacturing costs 9 9 1 6 0 0
Cost of all goods in process during the year $ 9 9 6 6 0 0
Less: Work in process, end of year 9 0 0 0
Cost of finished goods manufactured $ 9 8 7 6 0 0

34 The McGraw-Hill Companies, Inc., 2005
35 Minutes, Strong
PROBLEM 166
TOLEDO TOY CO.
a. TOLEDO TOY CO.
Schedule of the Cost of Finished Goods ManufacturedBaby Buddy
For the Year Ended 2005
Work in process inventory, Jan. 1, 2005 $ 4 1 0 0
Manufacturing costs assigned to production:
Direct materials used $ 3 3 3 6 0 0
Direct labor assigned to production 1 8 0 0 0 0
Manufacturing overhead 2 8 8 0 0 0
Total manufacturing costs 8 0 1 6 0 0
Total cost of all goods in process during the year $ 8 0 5 7 0 0
Less: Work in process inventory, Dec. 31 4 7 0 0
Cost of finished goods manufactured $ 8 0 1 0 0 0
b. Unit cost of goods finished in 2005:
Cost of finished goods manufactured (part a) $ 8 0 1 0 0 0
Units manufactured 6 0 0 0 0
Unit cost ($801,000 60,000 units) $ 1 3 35
c. Cost of goods sold (62,100 units, FIFO basis):
3,000 units from finished goods inventory at Jan. 1 $ 3 9 0 0 0
59,100 units manufactured in 2005 (@ $13.35 per unit) 7 8 8 9 8 5
Cost of goods sold $ 8 2 7 9 8 5
d. Inventory at December 31:
Materials:
Inventory at Jan. 1 $ 1 2 8 0 0
Add: Purchases of direct materials 3 3 2 0 0 0
Total direct materials available during the year $ 3 4 4 8 0 0
Less: Direct materials used 3 3 3 6 0 0
Materials inventory at Dec. 31 $ 1 1 2 0 0
Work in process inventory, Dec. 31 (given) 4 7 0 0
Finished goods:
Inventory at Jan. 1 $ 3 9 0 0 0
Add: Cost of finished goods manufactured (part a) 8 0 1 0 0 0
Cost of finished goods available for sale $ 8 4 0 0 0 0
Less: Cost of goods sold (part c ) 8 2 7 9 8 5
Finished goods inventory, Dec. 31 1 2 0 1 5
Total inventory appearing in the year-end balance sheet $ 2 7 9 1 5

Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 35

PROBLEM 166
TOLEDO TOY CO. (concluded)
e. Direct labor is a product cost, and therefore, it becomes attached to the products manufactured.
To the extent that units manufactured during 2005 were sold in that year, the direct labor costs
incurred in manufacturing those units comprise part of the cost of goods sold. To the extent that
manufactured units remain on hand, either as work in process or as finished goods, the direct
labor costs represent part of the cost of this inventory.

36 The McGraw-Hill Companies, Inc., 2005
35 Minutes, Medium
PROBLEM 167
NEVIS TOOLS
a. (1) Direct materials purchased $ 8 2 8 0 0 0
(2) Materials inventory, beginning of the year $ 5 6 4 0 0
Add: Direct materials purchased 8 2 8 0 0 0
Cost of direct materials available for use $ 8 8 4 4 0 0
Less: Materials inventory, end of year 6 2 4 0 0
Direct materials used $ 8 2 2 0 0 0
(3) Direct labor payrolls paid during the year $ 4 7 4 0 0 0
(4) Direct labor costs assigned to production $ 4 8 0 0 0 0
(5) Direct labor costs assigned to production $ 4 8 0 0 0 0
Less: Direct labor payrolls paid during year 4 7 4 0 0 0
Increase in the year-end liability for direct wages payable $ 6 0 0 0
(6) Direct materials used [part (2)] $ 8 2 2 0 0 0
Direct labor costs assigned to production 4 8 0 0 0 0
Manufacturing overhead applied to production 1 0 5 6 0 0 0
Total manufacturing costs debited to Work in Process Inventory account $ 2 3 5 8 0 0 0
(7) Work in process inventory, beginning of year $ 3 1 2 0 0
Total manufacturing costs debited to work in process inventory [part (6)] 2 3 5 8 0 0 0
Total cost of all goods in process during year $ 2 3 8 9 2 0 0
Less: Work in process inventory, end of year 2 8 8 0 0
Cost of finished goods manufactured $ 2 3 6 0 4 0 0
(8) Beginning inventory of finished goods $ 1 1 7 6 0 0
Add: Cost of finished goods manufactured 2 3 6 0 4 0 0
Cost of goods available for sale $ 2 4 7 8 0 0 0
Less: Cost of goods sold 2 3 7 0 0 0 0
Ending inventory of finished goods $ 1 0 8 0 0 0

Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 37

PROBLEM 167
NEVIS TOOLS (concluded)
b. NEVIS TOOLS, INC.
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31, 2005
Work in process inventory, beginning of year $ 3 1 2 0 0
Manufacturing costs assigned to production:
Direct materials used [part a(2)] $ 8 2 2 0 0 0
Direct labor assigned to production [part a(4)] 4 8 0 0 0 0
Manufacturing overhead costs 1 0 5 6 0 0 0
Total manufacturing costs 2 3 5 8 0 0 0
Total costs of all goods in process during the year $ 2 3 8 9 2 0 0
Less: Work in process inventory, end of year 2 8 8 0 0
Cost of finished goods manufactured $ 2 3 6 0 4 0 0

38 The McGraw-Hill Companies, Inc., 2005
25 Minutes, Medium
PROBLEM 168
IDAHO PAPER COMPANY
a. IDAHO PAPER CO.
Schedule of Finished Goods Manufactured
For the Year Ended December 31, 20__
Work in process inventory, January 1 $ 4 0 0 0 0
Manufacturing costs assigned to production:
Direct materials used (1) $ 3 3 5 0 0 0
Direct labor 3 7 5 0 0 0
Manufacturing overhead 6 3 7 5 0 0
Total manufacturing costs $ 1 3 4 7 5 0 0
Cost of all goods in process during the year $ 1 3 8 7 5 0 0
Less: Work in process inventory, December 31 3 7 5 0 0
Cost of finished goods manufactured $ 1 3 5 0 0 0 0
(1) Cost of direct materials used:
Materials inventory, January 1 $ 2 5 0 0 0
Purchases of direct materials 3 3 0 0 0 0
Cost of direct materials available for use $ 3 5 5 0 0 0
Less: Materials inventory, December 31 2 0 0 0 0
Cost of direct materials used $ 3 3 5 0 0 0
b. Average unit costs:
Cost of finished goods manufactured (part a) $ 1 3 5 0 0 0 0
Units manufactured 4 5 0 0 0
Average unit cost ($1,350,000 45,000 units) $ 3 0
c. Cost of goods sold (FIFO basis):
10,000 units @ $21 (beginning inventory of finished goods) $ 2 1 0 0 0 0
30,000 units @ $30 (from units manufactured in the current year) 9 0 0 0 0 0
Cost of goods sold during year (40,000 units) $ 1 1 1 0 0 0 0
d. Finished goods inventory, Dec. 31 (FIFO basis):
15,000 units (10,000 45,000 40,000) @ $30 $ 4 5 0 0 0 0

Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 39
15 Minutes, Easy
PROBLEM 169
MAYVILLE COMPANY
a. MAYVILLE COMPANY
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31, 2005
Work in process inventory, January 1, 2005 $ 6 0 0 0 0
Manufacturing costs assigned to production:
Direct materials used (1) $ 5 0 0 0 0
Direct labor 2 1 0 0 0
Manufacturing overhead 1 8 0 0 0
8 9 0 0 0
Total costs in process $ 1 4 9 0 0 0
Less: Work in process inventory, December 31, 2005 2 9 0 0 0
Cost of finished goods manufactured $ 1 2 0 0 0 0
(1) Computation of direct materials used:
Direct materials, January 1, 2005 $ 4 0 0 0 0
Direct materials purchased 3 0 0 0 0
Direct materials available $ 7 0 0 0 0
Less: Direct materials, December 31, 2005 2 0 0 0 0
Direct materials put into production $ 5 0 0 0 0

b. MAYVILLE COMPANY
Income Statement
For the Year Ended December 31, 2005
Sales $ 2 0 0 0 0 0
Less: Cost of goods sold (1) 1 1 0 0 0 0
Gross profit on sales $ 9 0 0 0 0
Less: Selling and administrative expenses 6 0 0 0 0
Net income $ 3 0 0 0 0
(1) The companys cost of goods sold figure is based on the
following flow of costs through production to finished goods:
Finished goods inventory, January 1, 2005 $ 4 2 0 0 0
Cost of finished goods manufactured 1 2 0 0 0 0
Cost of goods available for sale $ 1 6 2 0 0 0
Less: Finished goods inventory, December 31, 2005 5 2 0 0 0
Cost of goods sold $ 1 1 0 0 0 0

40 The McGraw-Hill Companies, Inc., 2005
15 Minutes, Easy
PROBLEM 1610
RIDGEWAY COMPANY
a. RIDGEWAY COMPANY
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31, 2005
Work in process inventory, January 1, 2005 $ 2 9 0 0 0
Manufacturing costs assigned to production:
Direct materials used (1) $ 2 5 0 0 0
Direct labor 2 2 0 0 0
Manufacturing overhead 1 9 0 0 0
6 6 0 0 0
Total costs in process $ 9 5 0 0 0
Less: Work in process inventory, December 31, 2005 4 1 0 0 0
Cost of finished goods manufactured $ 5 4 0 0 0
(1) Computation of direct materials used:
Direct materials, January 1, 2005 $ 6 0 0 0 0
Direct materials purchased 3 5 0 0 0
Direct materials available $ 9 5 0 0 0
Less: Direct materials, December 31, 2005 7 0 0 0 0
Direct materials put into production $ 2 5 0 0 0

b. RIDGEWAY COMPANY
Income Statement
For the Year Ended December 31, 2005
Sales $ 8 0 0 0 0
Less: Cost of goods sold (1) 5 9 0 0 0
Gross profit on sales $ 2 1 0 0 0
Less: Selling and administrative expenses 3 0 0 0 0
Net loss $ ( 9 0 0 0 )
(1) The companys cost of goods sold figure is based on the
following flow of costs through production to finished goods:
Finished goods inventory, January 1, 2005 $ 2 1 0 0 0
Cost of finished goods manufactured 5 4 0 0 0
Cost of goods available for sale $ 7 5 0 0 0
Less: Finished goods inventory, December 31, 2005 1 6 0 0 0
Cost of goods sold $ 5 9 0 0 0

Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 41
40 Minutes, Strong
PROBLEM 1611
RAYMOND ENGINEERING CO.
a. RAYMOND ENGINEERING CO.
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31, 20__
Manufacturing costs assigned to production:
Direct materials used (1) $ 1 3 5 0 0 0
Direct labor 1 1 0 0 0 0
Manufacturing overhead 1 7 0 0 0 0
Total manufacturing costs $ 4 1 5 0 0 0
Less: Work in process 3 1 5 0 0
Cost of finished goods manufactured $ 3 8 3 5 0 0
(1) Computation of cost of direct materials used:
Purchases of direct materials $ 1 8 1 0 0 0
Less: Materials inventory, end of year 4 6 0 0 0
Direct materials used $ 1 3 5 0 0 0
b. Cost of finished goods manufactured (part a) $ 3 8 3 5 0 0
Number of units manufactured (10,000 sold 3,000 in ending inventory) 1 3 0 0 0
Average cost per unit manufactured ($383,500 13,000 units) $ 2 9 50

c. RAYMOND ENGINEERING CO.
Income Statement
For the Year Ended December 31, 20__
Net sales $ 6 1 0 6 0 0
Cost of goods sold:
Cost of finished goods manufactured (part a) $ 3 8 3 5 0 0
Less: Ending inventory of finished goods 8 8 5 0 0
Cost of goods sold 2 9 5 0 0 0
Gross profit on sales $ 3 1 5 6 0 0
Operating expenses:
Selling expenses $ 7 0 6 0 0
Administrative expenses 1 3 2 0 0 0
Total operating expenses 2 0 2 6 0 0
Operating income $ 1 1 3 0 0 0
Income taxes expense ($113,000 30%) 3 3 9 0 0
Net income $ 7 9 1 0 0

42 The McGraw-Hill Companies, Inc., 2005

PROBLEM 1611
RAYMOND ENGINEERING CO. (concluded)
d. Evaluation of Raymonds conclusions:
Raymond is in error both about the $66.36 unit cost of production and about the overall
unprofitability of the business. In concluding that the business sustained a net loss, Raymond
treated product costs as if they were period costs to be offset against the revenue of the year.
Actually, a total of $166,000 of the product costs incurred should be assigned to the ending
inventories of materials ($46,000), work in process ($31,500), and finished goods ($88,500). The
costs associated with these ending inventories are assets at year-end, not expenses of the period.
Raymonds erroneous calculation of a net loss may be reconciled to the actual net income of the
business as follows:
Net loss calculated by Raymond ............................................................................................. $ (53,000)
Add: Product costs erroneously deducted as expense .......................................................... 166,000
Actual operating income ......................................................................................................... $ 113,000
Less: Income taxes (ignored by Raymond) ........................................................................... 33,900
Actual net income (see part c) ................................................................................................ $ 79,100
Raymond has made three errors in computing the cost of production. First, he included selling and
administrative expenses in his calculations. These costs do not relate to the manufacturing process
and, therefore, are not part of the cost to manufacturethe valves. Second, included in Raymonds
total costs of $663,600 are $77,500 applicable to the ending inventories of materials ($46,000) and of
work in process ($31,500). Since these costs do not relate to goods completed during the year, they
should not be included in the unit cost of finished goods. Third, Raymond divided his total cost
figure by only the 10,000 units sold during the period, rather than by the 13,000 finished units
manufactured (10,000 units sold + 3,000 finished units in inventory). The correct average unit cost of
finished goods manufactured is $29.50, as computed in part b. This amount compares very favorably
with competitors manufacturing costs of approximately $35 per unit.

Solutions Manual Vol. II, Financial and Managerial Accounting 13/e, Williams et al 43
40 Minutes, Strong
PROBLEM 1612
WEST TEXAS GUITAR COMPANY
a. The errors and shortcomings in the illustrated income statement include the following:
(1) All manufacturing costs incurred during the first year of operations have incorrectly been
included in the cost of goods sold. The portions of these costs that are applicable to the ending
inventories of materials, work in process, and finished goods are assets at year-end and should
not be deducted from the revenueof this first year.
(2) Dividends declared on common stock have been offset against revenue in measuring net
income. Dividends are not an expense and do not enter into the computation of net income or
net loss.
(3) Period expenses are improperly included in the cost of goods sold. As a result, the cost of goods
sold is improperly determined and the income statement does not disclose important subtotals,
such as gross profit, total operating expenses, and operating income.
As a result of deduction from revenue of dividends declared and of manufacturing costs relating
to ending inventories of raw materials, goods in process, and finished goods, it is reasonable to
conclude that the companys actual net income is higher than the amount shown in the income
statement.

b. (1) Cost of direct materials used:
Purchases of direct materials $ 4 6 0 0 0 0
Less: Material inventory, end of year 3 8 0 0 0
Cost of direct materials used $ 4 2 2 0 0 0
(2) Total manufacturing overhead:
Indirect labor $ 9 0 0 0 0
Depreciation on machinery 5 0 0 0 0
Rent ($144,000 60%) 8 6 4 0 0
Insurance ($16,000 60%) 9 6 0 0
Utilities ($28,000 60%) 1 6 8 0 0
Miscellaneous manufacturing overhead 3 4 6 0 0
Total manufacturing overhead $ 2 8 7 4 0 0

44 The McGraw-Hill Companies, Inc., 2005

PROBLEM 1612
WEST TEXAS GUITAR COMPANY (concluded)
c. WEST TEXAS GUITAR COMPANY
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31, 20__
Manufacturing costs assigned to production:
Direct materials used [part b(1) ] $ 4 2 2 0 0 0
Direct labor 2 2 5 0 0 0
Manufacturing overhead [part b(2) ] 2 8 7 4 0 0
Total manufacturing costs $ 9 3 4 4 0 0
Less: Work in process inventory, end of year 1 0 0 0 0
Cost of finished goods manufactured $ 9 2 4 4 0 0

d. WEST TEXAS GUITAR COMPANY
Income Statement
For the Year Ended December 31, 20__
Net sales $ 1 3 0 0 0 0 0
Cost of goods sold:
Cost of finished goods manufactured $ 9 2 4 4 0 0
Less: Ending finished goods inventory 1 1 0 4 0 0
Cost of goods sold 8 1 4 0 0 0
Gross profit on sales $ 4 8 6 0 0 0
Operating expenses:
Rent ($144,000 40%) $ 5 7 6 0 0
Insurance ($16,000 40%) 6 4 0 0
Utilities ($28,000 40%) 1 1 2 0 0
Other operating expenses 2 7 3 8 0 0
Total operating expenses 3 4 9 0 0 0
Income from operations $ 1 3 7 0 0 0
Income taxes ($137,000 30%) 4 1 1 0 0
Net income (as corrected) $ 9 5 9 0 0