Charles Maxwell is starting a cheesecake bakery, Able Baker Charlie Company, to
ID: 2565574 • Letter: C
Question
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.
Choose whether the following characteristics are most often associated with managerial accounting or financial accounting.
Managerial Accounting
Financial Accounting
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
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 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
Cost of goods manufactured
6,400.00
4
Cost of finished goods available for sale
$11,650.00
5
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 inventory
$5,250.00
3
Net purchases
6,400.00
4
Inventory available for sale
$11,650.00
5
Ending 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
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
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
Inventory:
5
Direct materials
$2,500.00
6
Work in process
1,500.00
7
Finished goods
2,000.00
8
Total inventory
6,000.00
9
Supplies
2,100.00
10
Land
17,000.00
11
Total assets
$55,900.00
12
Liabilities
13
Accounts payable
$17,800.00
14
Stockholders’ Equity
15
Common stock
$19,000.00
16
Retained earnings
19,100.00
17
Total stockholders’ equity
38,100.00
18
Total liabilities and stockholders’ equity
$55,900.00
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
Account
Account Balances
Costs Incurred
Jan. 31
Feb. 28
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.Explanation / Answer
Choose whether the following characteristics are most often associated with managerial accounting or financial accounting.
Primarily used for internal decision making
Managerial Accounting
Generally Accepted Accounting Principles (GAAP) must be used
Financial Accounting
Prepared statements usually pertain to the company as a whole rather than individual departments or products
Financial Accounting
Information provided will often be subjective, such as estimated future results
Managerial Accounting
Often prepared on an as-needed basis rather than at fixed intervals
Managerial Accounting
Use principles of the Sustainability Accounting Standards Board (SASB) to provide sustainability information to external financial statement users
Financial Accounting
Consideration of sustainability practices to contribute to the company’s long-term success
Managerial Accounting
Using eco-efficiency measures to reduce expenses
Managerial Accounting
Cost
Classification of Cost
Eggs used to make cheesecakes
Direct Material
Baker’s wages
Direct Labour
Delivery driver wages
Selling Expenses
Depreciation of office computers
Administrative Expenses
Power to run the cheesecake ovens
Direct Cost/Factory Overheads
President’s salary
Administrative Expenses
Sales commissions
Selling Expenses
Factory supervisor salary
Factory Overheads
3. Most Appropriate Income statement for a manufacturing business would be ( A)
Reason : The Income statement given vide example A is appropriate because it indicates the Beginning finished goods, Cost of goods Manufactured etc which are essential elements of Income statement of Manufacturing concern. On the other hand Income statement in sample B seems to be appropriate for trading business not manufacturing business.
4. Most Appropriate Balance sheet for a manufacturing business would be (D)
Reason: Balance sheet vide sample D gives details of inventory at different levels ie. Direct material,Work in progress and finished goods so it is more appropriate than (C ).
Account
Account Balances
Costs Incurred
Jan. 31
Feb. 28
Materials Inventory
$ 6,000.00
$ 3,000.00
Direct Materials Used
$ 14,700.00
Work in Process Inventory
$ 21,000.00
$ 8,700.00
Direct Labor Incurred
$ 4,900.00
Finished Goods Inventory
$ 11,200.00
$ 15,500.00
Factory Overhead Incurred
$ 9,100.00
Cost of Goods Sold
$ 36,700.00
Calculations
Cost of goods Manufactured
(28700/70%)
$ 41,000.00
Cost of goods Sold
(28700+8000)
$ 36,700.00
Material used
(11700+3000)
$ 14,700.00
Direct Labour Incurred
Opening Finished Goods Inventory
(36700+15500-41000)
$ 11,200.00
Direct labour incurred
(1/3 of Material Used)
$ 4,900.00
Opening and closing Material inventory has a diffrence of $ 3000.
Opening Material Inventory
$ 6,000.00
Closing material Inventory
$ 3,000.00
Caclulation of Closing WIP
COGM (A)
$ 41,000.00
Opening WIP (B)
$ 21,000.00
Total Manufacturing cost (C )
$ 28,700.00
Closing WIP (Balancing Figure) (D=A-B-C)
$ 8,700.00
Calculation of Factory overheads
Total Manufacturing cost (A)
$ 28,700.00
Less Direct Labour (B)
$ 4,900.00
Less material used (C )
$ 14,700.00
Factory overheads (D=A-B-C)
$ 9,100.00
Choose whether the following characteristics are most often associated with managerial accounting or financial accounting.
Primarily used for internal decision making
Managerial Accounting
Generally Accepted Accounting Principles (GAAP) must be used
Financial Accounting
Prepared statements usually pertain to the company as a whole rather than individual departments or products
Financial Accounting
Information provided will often be subjective, such as estimated future results
Managerial Accounting
Often prepared on an as-needed basis rather than at fixed intervals
Managerial Accounting
Use principles of the Sustainability Accounting Standards Board (SASB) to provide sustainability information to external financial statement users
Financial Accounting
Consideration of sustainability practices to contribute to the company’s long-term success
Managerial Accounting
Using eco-efficiency measures to reduce expenses
Managerial Accounting