Class Notes for Managerial Accounting, Second Canadian Edition
Class Notes for Managerial Accounting, Second Canadian Edition helps you review course material quickly and effectively.
Seller Steve
Contributor
4.3
40
about 2 months ago
Preview (31 of 153)
Sign in to access the full document!
I NSTRUCTOR ’S RESOURCE M ANUAL
Pam Quon
Athabasca University
Managerial Accounting
Canadian Edition
Karen Wilken Braun
Case Western Reserve University
Wendy M. Tietz
Kent State University
Walter T. Harrison, Jr.
Baylor University
Rhonda Pyper
University of Ottawa
Pam Quon
Athabasca University
Managerial Accounting
Canadian Edition
Karen Wilken Braun
Case Western Reserve University
Wendy M. Tietz
Kent State University
Walter T. Harrison, Jr.
Baylor University
Rhonda Pyper
University of Ottawa
Contents
1 Introduction to Managerial Accounting 1
2 Building Blocks of Managerial Accounting 12
3 Job Costing 25
4 Activity-Based Costing, Lean Production, and the Costs of Quality 36
5 Process Costing 49
6 Cost Behaviour 60
7 Cost-Volume-Profit Analysis 72
8 Short-Term Business Decisions 86
9 The Master Budget and Responsibility Accounting 99
10 Flexible Budgets and Standard Costs 110
11 Performance Evaluation and the Balanced Scorecard 124
12 Capital Investment Decisions and the Time Value of Money 136
Sample Syllabi for 10 weeks
Sample Syllabi for 12 weeks
Tips for Taking Your Course from Traditional to Hybrid, Blended or Online
Tips for How to Get an A in This Class
1 Introduction to Managerial Accounting 1
2 Building Blocks of Managerial Accounting 12
3 Job Costing 25
4 Activity-Based Costing, Lean Production, and the Costs of Quality 36
5 Process Costing 49
6 Cost Behaviour 60
7 Cost-Volume-Profit Analysis 72
8 Short-Term Business Decisions 86
9 The Master Budget and Responsibility Accounting 99
10 Flexible Budgets and Standard Costs 110
11 Performance Evaluation and the Balanced Scorecard 124
12 Capital Investment Decisions and the Time Value of Money 136
Sample Syllabi for 10 weeks
Sample Syllabi for 12 weeks
Tips for Taking Your Course from Traditional to Hybrid, Blended or Online
Tips for How to Get an A in This Class
Contents
1 Introduction to Managerial Accounting 1
2 Building Blocks of Managerial Accounting 12
3 Job Costing 25
4 Activity-Based Costing, Lean Production, and the Costs of Quality 36
5 Process Costing 49
6 Cost Behaviour 60
7 Cost-Volume-Profit Analysis 72
8 Short-Term Business Decisions 86
9 The Master Budget and Responsibility Accounting 99
10 Flexible Budgets and Standard Costs 110
11 Performance Evaluation and the Balanced Scorecard 124
12 Capital Investment Decisions and the Time Value of Money 136
Sample Syllabi for 10 weeks
Sample Syllabi for 12 weeks
Tips for Taking Your Course from Traditional to Hybrid, Blended or Online
Tips for How to Get an A in This Class
1 Introduction to Managerial Accounting 1
2 Building Blocks of Managerial Accounting 12
3 Job Costing 25
4 Activity-Based Costing, Lean Production, and the Costs of Quality 36
5 Process Costing 49
6 Cost Behaviour 60
7 Cost-Volume-Profit Analysis 72
8 Short-Term Business Decisions 86
9 The Master Budget and Responsibility Accounting 99
10 Flexible Budgets and Standard Costs 110
11 Performance Evaluation and the Balanced Scorecard 124
12 Capital Investment Decisions and the Time Value of Money 136
Sample Syllabi for 10 weeks
Sample Syllabi for 12 weeks
Tips for Taking Your Course from Traditional to Hybrid, Blended or Online
Tips for How to Get an A in This Class
CHAPTER 1
Introduction to Managerial Accounting
CHAPTER OVERVIEW
The chapter introduces managerial accounting along with the fundamental principle of the text,
which is the importance of using managerial accounting data in decision-making. Students are
introduced to the importance of cost of goods sold and to decision-making by discussing the
primary responsibilities of a managerial accountant: planning, directing, controlling, and
decision-making. To help students understand the managerial accounting focus, financial and
managerial accounting are contrasted and compared. Managerial accounting has internal users
relying on relevant information prepared specifically for management’s needs and financial
accounting has external users using reliable and objective information in the form of financial
statements.
The importance of using managerial accounting for decision-making is illustrated through the
presentation of organizational structures and the roles and skills required of management
accountants. In addition to their traditional costing and reporting roles, management accountants
also play an important role in developing budgets that influence the organization’s culture and
strategy. Increasing the importance and profile of management accountants is a goal of the
Society of Management Accountants of Canada which governs the Certified Management
Accountants (CMAs). The Society of Management Accountants is the professional association
for management accountants which also develops standards of ethics and standards of
professional conduct.
The Decision Guidelines and Summary Problems are useful examples of questions and outlines
that help students summarize their learning. Two sets of Decision Guidelines are present in this
chapter. The first set of guidelines focuses on decision-making.
The next section of the chapter presents the implications of regulatory and business trends. These
include the Sarbanes-Oxley Act of 2002, IFRS, XBRL, the shift towards a service economy,
competition in the global marketplace, sustainability and social responsibility, time-based
competition, advanced information systems, e-commerce, lean production, total quality
management, and ISO 9001:2008. The Decision Guidelines illustrate some of the decisions
managers need to consider in response to changes in the regulatory and business environment.
An additional Summary Problem allows students to use cost-benefit analysis to determine
whether a company should expand or not.
LEARNING OBJECTIVES
After studying Chapter 1, your students should be able to:
1. Identify managers’ four primary responsibilities.
2. Distinguish financial accounting from managerial accounting.
Introduction to Managerial Accounting
CHAPTER OVERVIEW
The chapter introduces managerial accounting along with the fundamental principle of the text,
which is the importance of using managerial accounting data in decision-making. Students are
introduced to the importance of cost of goods sold and to decision-making by discussing the
primary responsibilities of a managerial accountant: planning, directing, controlling, and
decision-making. To help students understand the managerial accounting focus, financial and
managerial accounting are contrasted and compared. Managerial accounting has internal users
relying on relevant information prepared specifically for management’s needs and financial
accounting has external users using reliable and objective information in the form of financial
statements.
The importance of using managerial accounting for decision-making is illustrated through the
presentation of organizational structures and the roles and skills required of management
accountants. In addition to their traditional costing and reporting roles, management accountants
also play an important role in developing budgets that influence the organization’s culture and
strategy. Increasing the importance and profile of management accountants is a goal of the
Society of Management Accountants of Canada which governs the Certified Management
Accountants (CMAs). The Society of Management Accountants is the professional association
for management accountants which also develops standards of ethics and standards of
professional conduct.
The Decision Guidelines and Summary Problems are useful examples of questions and outlines
that help students summarize their learning. Two sets of Decision Guidelines are present in this
chapter. The first set of guidelines focuses on decision-making.
The next section of the chapter presents the implications of regulatory and business trends. These
include the Sarbanes-Oxley Act of 2002, IFRS, XBRL, the shift towards a service economy,
competition in the global marketplace, sustainability and social responsibility, time-based
competition, advanced information systems, e-commerce, lean production, total quality
management, and ISO 9001:2008. The Decision Guidelines illustrate some of the decisions
managers need to consider in response to changes in the regulatory and business environment.
An additional Summary Problem allows students to use cost-benefit analysis to determine
whether a company should expand or not.
LEARNING OBJECTIVES
After studying Chapter 1, your students should be able to:
1. Identify managers’ four primary responsibilities.
2. Distinguish financial accounting from managerial accounting.
Loading page 4...
Chapter 1
2
3. Describe organizational structure and the roles and skills required of management
accountants within the organization.
4. Describe the role of the three professional accounting designations in Canada and use their
ethical standards to make reasonable ethical judgments.
5. Discuss and analyze the implications of regulatory and business trends.
TEACHING OUTLINE
1. Identify managers’ four primary responsibilities
a. Planning
b. Directing
c. Controlling
d. Decision-making
e. Exhibit 1-1 Managers’ Four Primary Responsibilities
2. Distinguish the differences between financial accounting and managerial accounting
a. Users
b. Purpose of information provided
c. Accounting product
d. Required information and reporting format
e. Underlying basis of the information
f. Information characteristic emphasis
g. Business unit
h. Timing
i. Verification
j. Required information
k. Impact of reports on behaviour
l. Exhibit 1-2 Managerial Accounting Versus Financial Accounting
3. Describe the organizational structure and the roles and skills required of management
accountants within the organization
a. CEO
b. COO
c. CFO
d. Treasurer
e. Controller
f. Internal audit function
g. Audit committee
h. Exhibit 1-3 Typical Organizational Structure
4. Discuss the changing roles of management accountants
5. Discuss the skills required of management accountants
2
3. Describe organizational structure and the roles and skills required of management
accountants within the organization.
4. Describe the role of the three professional accounting designations in Canada and use their
ethical standards to make reasonable ethical judgments.
5. Discuss and analyze the implications of regulatory and business trends.
TEACHING OUTLINE
1. Identify managers’ four primary responsibilities
a. Planning
b. Directing
c. Controlling
d. Decision-making
e. Exhibit 1-1 Managers’ Four Primary Responsibilities
2. Distinguish the differences between financial accounting and managerial accounting
a. Users
b. Purpose of information provided
c. Accounting product
d. Required information and reporting format
e. Underlying basis of the information
f. Information characteristic emphasis
g. Business unit
h. Timing
i. Verification
j. Required information
k. Impact of reports on behaviour
l. Exhibit 1-2 Managerial Accounting Versus Financial Accounting
3. Describe the organizational structure and the roles and skills required of management
accountants within the organization
a. CEO
b. COO
c. CFO
d. Treasurer
e. Controller
f. Internal audit function
g. Audit committee
h. Exhibit 1-3 Typical Organizational Structure
4. Discuss the changing roles of management accountants
5. Discuss the skills required of management accountants
Loading page 5...
Chapter 1
3
a. Solid accounting knowledge
b. Problem-solving and decision-making skills
c. Knowledge of how a business functions
d. Ability to lead and work on a team (team oriented)
e. Professionalism and ethical standards
f. Oral and written communication skills
g. Exhibit 1-4 The Skills Required of Management Accountants
6. Describe the role of the three professional accounting designations in Canada
a. Professional associations
b. Certified Management Accountants (CMAs), Chartered Accountants (CAs) and
Certified General Accountants (CGAs)
7. Identify the CMA’s ethical standards and how they are used to make reasonable ethical
decisions
a. Maintain professional competence
b. Preserve confidentiality of information
c. Perform duties with credibility
d. Uphold their integrity
e. Maintain independence
f. Exhibit 1-5 Summary of Ethical Standards
g. Unethical versus illegal behaviour
h. Exhibit 1-6 The Society of Management Accountants of Ontario Code of Professional
Ethics
8. Discuss current regulatory and business trends
a. Sarbanes-Oxley Act of 2002 (SOX)
b. Exhibit 1-7 Some Important Results of SOX
c. International Financial Reporting Standards (IFRS)
d. Extensible Business Reporting Language (XBRL)
e. Shifting economy
9. Competing in the global marketplace
a. Sustainability and social responsibility
b. Tools for time-based competition
i. Advanced information systems
ii. Ecommerce
iii. Lean production
1. Just-in-time
2. Throughput time
c. Total quality management and ISO 9001:2008
KEY TOPICS
This chapter is the foundation for the rest of the text. Without a good understanding of this
chapter, the student will have a difficult time understanding the remaining content.
3
a. Solid accounting knowledge
b. Problem-solving and decision-making skills
c. Knowledge of how a business functions
d. Ability to lead and work on a team (team oriented)
e. Professionalism and ethical standards
f. Oral and written communication skills
g. Exhibit 1-4 The Skills Required of Management Accountants
6. Describe the role of the three professional accounting designations in Canada
a. Professional associations
b. Certified Management Accountants (CMAs), Chartered Accountants (CAs) and
Certified General Accountants (CGAs)
7. Identify the CMA’s ethical standards and how they are used to make reasonable ethical
decisions
a. Maintain professional competence
b. Preserve confidentiality of information
c. Perform duties with credibility
d. Uphold their integrity
e. Maintain independence
f. Exhibit 1-5 Summary of Ethical Standards
g. Unethical versus illegal behaviour
h. Exhibit 1-6 The Society of Management Accountants of Ontario Code of Professional
Ethics
8. Discuss current regulatory and business trends
a. Sarbanes-Oxley Act of 2002 (SOX)
b. Exhibit 1-7 Some Important Results of SOX
c. International Financial Reporting Standards (IFRS)
d. Extensible Business Reporting Language (XBRL)
e. Shifting economy
9. Competing in the global marketplace
a. Sustainability and social responsibility
b. Tools for time-based competition
i. Advanced information systems
ii. Ecommerce
iii. Lean production
1. Just-in-time
2. Throughput time
c. Total quality management and ISO 9001:2008
KEY TOPICS
This chapter is the foundation for the rest of the text. Without a good understanding of this
chapter, the student will have a difficult time understanding the remaining content.
Loading page 6...
Chapter 1
4
After covering managers’ four primary responsibilities, consider offering the following example:
A manager may wish to expand a company’s custodial service from only cleaning private homes
to also cleaning corporate offices and plants. This goal is then developed into a budget
(planning). That budget is analyzed thoroughly to determine both the price points and how to
market the service (directing). After comparing the budget to the actual results, the managerial
accountant determines that the expansion into the new market is somewhat slower than expected
and decides to change its marketing strategy (controlling). Decision-making is the fourth
responsibility and occurs at all levels of the process. For example, if the marketing strategy
works and the corporation proceeds toward meeting its goals, the managerial accountant focuses
attention on which new services will be offered, how much to charge for the services, and if
loyalty discounts should be given to existing customers who purchase these services (decision-
making).
In teams or in partners, have students complete E1-18B Managers’ responsibilities, which
should take about five minutes. Call on a student to give the answers.
At this point, the accounting student has most likely only been exposed to financial accounting.
Students sometimes have a difficult time making the adjustment from financial to managerial
accounting. Use Exhibit 1-2 to emphasize the differences between financial and managerial
accounting. This is a great time to review the role of financial accountants in our society and then
explain the role of management accountants. In doing so, be sure to also point out some of the
similarities between financial and management accounting, as this will help students understand
that their study of management accounting focuses on external decision-makers, whereas
managerial accounting focuses on internal decision-makers.
Here’s an example: A manager is setting the price of items in the store. In order to make this
decision, the manager needs to know the cost of the items, the other organizational costs, the
sales prices for other similar items, etc. Of course, these matters are of great importance to an
internal management accountant. An external accountant would not make the same decisions;
instead, he/she would make decisions based on information contained in the financial statements.
In team or in partners, have students complete E1-20B Identify users of accounting
information (10 minutes). Point out that most decisions impact non-accountants and stress the
importance for non-accounting majors to understand managerial accounting.
Many students love to discuss ethical issues. Sometimes students may have ethical issues
presented to them in a casual way. Here is an example: A supervisor requests that you don’t
record your overtime on your timesheet. This will allow the supervisor to stay within the budget,
but it doesn’t properly reflect what is happening within the organization. You feel pressure from
the supervisor. Ask students what ethical issues are involved in this example.
Ask students how many of them were left unsupervised when they first started a new job. How
accurate was their work? Would the students feel responsible for making an error if they had
been properly trained?
4
After covering managers’ four primary responsibilities, consider offering the following example:
A manager may wish to expand a company’s custodial service from only cleaning private homes
to also cleaning corporate offices and plants. This goal is then developed into a budget
(planning). That budget is analyzed thoroughly to determine both the price points and how to
market the service (directing). After comparing the budget to the actual results, the managerial
accountant determines that the expansion into the new market is somewhat slower than expected
and decides to change its marketing strategy (controlling). Decision-making is the fourth
responsibility and occurs at all levels of the process. For example, if the marketing strategy
works and the corporation proceeds toward meeting its goals, the managerial accountant focuses
attention on which new services will be offered, how much to charge for the services, and if
loyalty discounts should be given to existing customers who purchase these services (decision-
making).
In teams or in partners, have students complete E1-18B Managers’ responsibilities, which
should take about five minutes. Call on a student to give the answers.
At this point, the accounting student has most likely only been exposed to financial accounting.
Students sometimes have a difficult time making the adjustment from financial to managerial
accounting. Use Exhibit 1-2 to emphasize the differences between financial and managerial
accounting. This is a great time to review the role of financial accountants in our society and then
explain the role of management accountants. In doing so, be sure to also point out some of the
similarities between financial and management accounting, as this will help students understand
that their study of management accounting focuses on external decision-makers, whereas
managerial accounting focuses on internal decision-makers.
Here’s an example: A manager is setting the price of items in the store. In order to make this
decision, the manager needs to know the cost of the items, the other organizational costs, the
sales prices for other similar items, etc. Of course, these matters are of great importance to an
internal management accountant. An external accountant would not make the same decisions;
instead, he/she would make decisions based on information contained in the financial statements.
In team or in partners, have students complete E1-20B Identify users of accounting
information (10 minutes). Point out that most decisions impact non-accountants and stress the
importance for non-accounting majors to understand managerial accounting.
Many students love to discuss ethical issues. Sometimes students may have ethical issues
presented to them in a casual way. Here is an example: A supervisor requests that you don’t
record your overtime on your timesheet. This will allow the supervisor to stay within the budget,
but it doesn’t properly reflect what is happening within the organization. You feel pressure from
the supervisor. Ask students what ethical issues are involved in this example.
Ask students how many of them were left unsupervised when they first started a new job. How
accurate was their work? Would the students feel responsible for making an error if they had
been properly trained?
Loading page 7...
Chapter 1
5
Ask students to assume they work for a company. In this scenario, they will have heard that their
company is being sold. The information is confidential, and they can’t speak about it. What
would they do if their best friend wanted to buy stock?
You can use E1-23B Ethical dilemma (5 minutes) as a group or partner exercise.
When discussing the Sarbanes-Oxley Act, remember that many of today’s students probably
don’t remember businesses before accounting scandals. Students have likely become cynical
about accounting practices based on news media. Ask students to identify what would give them
confidence in the accounting decisions of an organization.
In the shifting economy section, ask students if they think Apple manufactures its own
headphones or if they are manufactured by an outside company. Ask them what information
might be part of Apple’s decision: How much it would cost Apple to make the headphones? How
much would it cost to have someone else make them? If someone else made them, could that
manufacturing space be used for additional funds?
In the e-commerce section, ask students if they like to use self-checkout lanes. Why/why not?
Ask how many students bought their textbooks online. Why/why not?
In the lean production section, JIT management is easily illustrated by using milk as an example.
If a company bought more milk than the space allowed on a store shelf, where would it be kept?
Can it be kept cold? Is it worth paying for the refrigeration? How long can it be held to keep it
fresh? JIT is more economical if the store does not buy large quantities of milk, but instead buys
small amounts of milk more often.
For a cost benefit example, ask students if they think retailers should attach large alarm tags on
leather coats that would signal an alarm if someone carried the coat out of the store without
paying. Would these same tags be effective on candy bars? What factors make it better for the
coat than the candy? Answer: The tags would not be customer friendly and the cost of the tags
would not be worth the amount of candy stolen from the store (cost-benefit).
Personalize the expected value concept by comparing the cost investment in college to the
expected increase in earnings the students expect to have with their education.
Have student complete E1-27B Lean production cost-benefit analysis (5 minutes) in teams or
partners.
5
Ask students to assume they work for a company. In this scenario, they will have heard that their
company is being sold. The information is confidential, and they can’t speak about it. What
would they do if their best friend wanted to buy stock?
You can use E1-23B Ethical dilemma (5 minutes) as a group or partner exercise.
When discussing the Sarbanes-Oxley Act, remember that many of today’s students probably
don’t remember businesses before accounting scandals. Students have likely become cynical
about accounting practices based on news media. Ask students to identify what would give them
confidence in the accounting decisions of an organization.
In the shifting economy section, ask students if they think Apple manufactures its own
headphones or if they are manufactured by an outside company. Ask them what information
might be part of Apple’s decision: How much it would cost Apple to make the headphones? How
much would it cost to have someone else make them? If someone else made them, could that
manufacturing space be used for additional funds?
In the e-commerce section, ask students if they like to use self-checkout lanes. Why/why not?
Ask how many students bought their textbooks online. Why/why not?
In the lean production section, JIT management is easily illustrated by using milk as an example.
If a company bought more milk than the space allowed on a store shelf, where would it be kept?
Can it be kept cold? Is it worth paying for the refrigeration? How long can it be held to keep it
fresh? JIT is more economical if the store does not buy large quantities of milk, but instead buys
small amounts of milk more often.
For a cost benefit example, ask students if they think retailers should attach large alarm tags on
leather coats that would signal an alarm if someone carried the coat out of the store without
paying. Would these same tags be effective on candy bars? What factors make it better for the
coat than the candy? Answer: The tags would not be customer friendly and the cost of the tags
would not be worth the amount of candy stolen from the store (cost-benefit).
Personalize the expected value concept by comparing the cost investment in college to the
expected increase in earnings the students expect to have with their education.
Have student complete E1-27B Lean production cost-benefit analysis (5 minutes) in teams or
partners.
Loading page 8...
Chapter 1
6
CHAPTER 1: STUDENT SUMMARY HANDOUT
1. Managers’ four primary responsibilities
a. Planning
b. Directing
c. Controlling
d. Decision-Making
2. Differences between Financial Accounting and Managerial Accounting
3. Organizational structure and how management accountants fit in
a. Changing roles
b. Skills required
4. The CMA and ethical standards
a. Competence
b. Confidentiality
c. Credibility
d. Integrity
e. Independence
5. Regulatory and business trends
6. Competition in today’s global marketplace
6
CHAPTER 1: STUDENT SUMMARY HANDOUT
1. Managers’ four primary responsibilities
a. Planning
b. Directing
c. Controlling
d. Decision-Making
2. Differences between Financial Accounting and Managerial Accounting
3. Organizational structure and how management accountants fit in
a. Changing roles
b. Skills required
4. The CMA and ethical standards
a. Competence
b. Confidentiality
c. Credibility
d. Integrity
e. Independence
5. Regulatory and business trends
6. Competition in today’s global marketplace
Loading page 9...
Chapter 1
7
CHAPTER 1: ASSIGNMENT GRID
Assignment Topic(s) Learning
Objective(s)
Estimated
Time in
Minutes
Level of
Difficulty
Available in
Excel
Templates
Short Exercises
S1-1 Roles of managers 1 5 Easy
S1-2 Contrast managerial and
financial accounting 2 5 Easy
S1-3 Accounting roles in the
organization 3 5 Easy
S1-4 Role of internal audit
function 3 5 Easy
S1-5 Importance of ethical
standards 4 5 Easy
S1-6 Violations of ethical
standards 4 5 Easy
S1-7 Identify current competitive
tools 5 5 Easy
Exercises (Set A)
E1-8A Manager's responsibilities 1 5 Easy X
E1-9A Define key terms 1 & 2 5 Easy
E1-10A Identify users of accounting
information 3 10 Easy
E1-11A Classify roles within the
organization 3 5 Easy
E1-12A Professional organization
and certification 4 5 Easy
E1-13A Ethical dilemma 4 5 Easy
E1-14A Classify ethical
responsibilities 4 10 Easy
E1-15A Define key terms 5 10 Easy
E1-16A Summarize the Sarbanes-
Oxley Act 5 10 Medium
E1-17A Lean production cost-benefit
analysis 5 5 Medium
Exercises (Set B)
E1-18B Manager's responsibilities 1 5 Easy
E1-19B Define key terms 1 & 2 5 Easy
E1-20B Identify users of accounting
information 3 10 Easy X
E1-21B Classify roles within the
organization 3 5 Easy
E1-22B Professional organization
and certification 4 5 Easy
E1-23B Ethical dilemma 4 5 Easy
E1-24B Classify ethical
responsibilities 4 10 Easy
E1-25B Define key terms 5 10 Easy
E1-26B Summarize the Sarbanes- 5 10 Medium
7
CHAPTER 1: ASSIGNMENT GRID
Assignment Topic(s) Learning
Objective(s)
Estimated
Time in
Minutes
Level of
Difficulty
Available in
Excel
Templates
Short Exercises
S1-1 Roles of managers 1 5 Easy
S1-2 Contrast managerial and
financial accounting 2 5 Easy
S1-3 Accounting roles in the
organization 3 5 Easy
S1-4 Role of internal audit
function 3 5 Easy
S1-5 Importance of ethical
standards 4 5 Easy
S1-6 Violations of ethical
standards 4 5 Easy
S1-7 Identify current competitive
tools 5 5 Easy
Exercises (Set A)
E1-8A Manager's responsibilities 1 5 Easy X
E1-9A Define key terms 1 & 2 5 Easy
E1-10A Identify users of accounting
information 3 10 Easy
E1-11A Classify roles within the
organization 3 5 Easy
E1-12A Professional organization
and certification 4 5 Easy
E1-13A Ethical dilemma 4 5 Easy
E1-14A Classify ethical
responsibilities 4 10 Easy
E1-15A Define key terms 5 10 Easy
E1-16A Summarize the Sarbanes-
Oxley Act 5 10 Medium
E1-17A Lean production cost-benefit
analysis 5 5 Medium
Exercises (Set B)
E1-18B Manager's responsibilities 1 5 Easy
E1-19B Define key terms 1 & 2 5 Easy
E1-20B Identify users of accounting
information 3 10 Easy X
E1-21B Classify roles within the
organization 3 5 Easy
E1-22B Professional organization
and certification 4 5 Easy
E1-23B Ethical dilemma 4 5 Easy
E1-24B Classify ethical
responsibilities 4 10 Easy
E1-25B Define key terms 5 10 Easy
E1-26B Summarize the Sarbanes- 5 10 Medium
Loading page 10...
Chapter 1
8
Assignment Topic(s) Learning
Objective(s)
Estimated
Time in
Minutes
Level of
Difficulty
Available in
Excel
Templates
Oxley Act
E1-27B Lean production cost-benefit
analysis 5 5 Medium
Problems (Set A)
P1-28A Management processes and
accounting information 1 & 2
P1-29A Ethical dilemmas 4 10 Medium
P1-30A ERP, cost-benefit analysis 5 15-20 Medium
P1-31A Ecommerce cost-benefit
analysis 5 10 Medium X
P1-32A Continuation of P1-31A:
revised estimates 5 15 Difficult
Problems (Set B)
P1-33B Management processes and
accounting information 1 & 2 10 Easy
P1-34B Ethical dilemmas 4 10 Medium
P1-35B ERP cost-benefit analysis 5 20 Medium X
P1-36B Ecommerce cost-benefit
analysis 5 10 Medium
P1-37B Continuation of P1-36B:
revised estimates 5 15 Difficult
Other
Decision
Case
C1-38 Ethical standards 4 5 Easy
Ethical Issue
I1-39 Ethical dilemma 4 5-10 Easy
Team Project
T1-40
Interviewing a local
company about ecommerce 5 60 Difficult
Discussion
and Analysis All 60 Medium
Application
and Analysis All 30-60 Medium
8
Assignment Topic(s) Learning
Objective(s)
Estimated
Time in
Minutes
Level of
Difficulty
Available in
Excel
Templates
Oxley Act
E1-27B Lean production cost-benefit
analysis 5 5 Medium
Problems (Set A)
P1-28A Management processes and
accounting information 1 & 2
P1-29A Ethical dilemmas 4 10 Medium
P1-30A ERP, cost-benefit analysis 5 15-20 Medium
P1-31A Ecommerce cost-benefit
analysis 5 10 Medium X
P1-32A Continuation of P1-31A:
revised estimates 5 15 Difficult
Problems (Set B)
P1-33B Management processes and
accounting information 1 & 2 10 Easy
P1-34B Ethical dilemmas 4 10 Medium
P1-35B ERP cost-benefit analysis 5 20 Medium X
P1-36B Ecommerce cost-benefit
analysis 5 10 Medium
P1-37B Continuation of P1-36B:
revised estimates 5 15 Difficult
Other
Decision
Case
C1-38 Ethical standards 4 5 Easy
Ethical Issue
I1-39 Ethical dilemma 4 5-10 Easy
Team Project
T1-40
Interviewing a local
company about ecommerce 5 60 Difficult
Discussion
and Analysis All 60 Medium
Application
and Analysis All 30-60 Medium
Loading page 11...
Chapter 1
9
ANSWER KEY TO CHAPTER 1 QUIZ (Quiz on following pages.)
1. C
2. B
3. B
4. B
5. D
6. A
7. D
8. A
9. C
10. B
9
ANSWER KEY TO CHAPTER 1 QUIZ (Quiz on following pages.)
1. C
2. B
3. B
4. B
5. D
6. A
7. D
8. A
9. C
10. B
Loading page 12...
Chapter 1
10
Name_______________________________ Date_______________ Section_______________
CHAPTER 1
TEN-MINUTE QUIZ
Circle the letter of the best response.
1. Which of the following are a manager’s four primary responsibilities?
A. Budgeting, Directing, Controlling, Decision-Making
B. Budgeting, Planning, Controlling, Decision-Making
C. Planning, Directing, Controlling, Decision-Making
D. Budgeting, Planning, Directing, Controlling
2. Which of the following is an example of controlling?
A. Management decides to open a new storage facility in Canada.
B. After comparing budget to actual, management adjusts its plan to keep the
company on goal.
C. After reviewing the daily sales, management revises its staffing schedule.
D. Management sets goals to meet in the next fiscal year.
3. Which of the following is TRUE about managerial accounting vs. financial accounting?
A. Both managerial and financial reports are prepared quarterly and annually.
B. Managerial accounting is primarily utilized by internal users, while financial
accounting is primarily utilized by external users.
C. The primary information characteristics for managerial accounting are reliability
and objectivity, while the primary information characteristic for financial
accounting is relevance.
D. The CMA requires managerial accounting reports and the SEC requires financial
accounting reports.
4. Which of the following statements is FALSE?
A. Managers are concerned with the internal use of accounting information.
B. Managerial accounting information relies heavily on its reliability and objectivity.
C. Managerial accounting reports are not required by any authoritative body.
D. Managerial accounting information must be relevant.
5. Which of the following statements is FALSE?
A. The treasurer and controller report directly to the CFO.
B. The COO is responsible for the company’s operations.
C. The board of directors hires the CEO to manage the company on a daily basis.
D. The internal audit department reports solely to the CFO.
6. The individual responsible for managing all of the operations of the organization, such as
product packaging, is the:
10
Name_______________________________ Date_______________ Section_______________
CHAPTER 1
TEN-MINUTE QUIZ
Circle the letter of the best response.
1. Which of the following are a manager’s four primary responsibilities?
A. Budgeting, Directing, Controlling, Decision-Making
B. Budgeting, Planning, Controlling, Decision-Making
C. Planning, Directing, Controlling, Decision-Making
D. Budgeting, Planning, Directing, Controlling
2. Which of the following is an example of controlling?
A. Management decides to open a new storage facility in Canada.
B. After comparing budget to actual, management adjusts its plan to keep the
company on goal.
C. After reviewing the daily sales, management revises its staffing schedule.
D. Management sets goals to meet in the next fiscal year.
3. Which of the following is TRUE about managerial accounting vs. financial accounting?
A. Both managerial and financial reports are prepared quarterly and annually.
B. Managerial accounting is primarily utilized by internal users, while financial
accounting is primarily utilized by external users.
C. The primary information characteristics for managerial accounting are reliability
and objectivity, while the primary information characteristic for financial
accounting is relevance.
D. The CMA requires managerial accounting reports and the SEC requires financial
accounting reports.
4. Which of the following statements is FALSE?
A. Managers are concerned with the internal use of accounting information.
B. Managerial accounting information relies heavily on its reliability and objectivity.
C. Managerial accounting reports are not required by any authoritative body.
D. Managerial accounting information must be relevant.
5. Which of the following statements is FALSE?
A. The treasurer and controller report directly to the CFO.
B. The COO is responsible for the company’s operations.
C. The board of directors hires the CEO to manage the company on a daily basis.
D. The internal audit department reports solely to the CFO.
6. The individual responsible for managing all of the operations of the organization, such as
product packaging, is the:
Loading page 13...
Chapter 1
11
A. COO.
B. CFO.
C. CEO.
D. CMA.
7. Which of the following skills is NOT required of management accountants?
A. Analytical skills
B. Ability to work on a team
C. Oral and written communication skills
D. Speak a foreign language
8. Management accountants must comply with all of the following ethical standards
EXCEPT:
A. reporting ethical breaches to the CMA.
B. maintaining professional competence.
C. performing duties with credibility.
D. preserving confidentiality of information.
9. Which of the following is NOT an important result of the Sarbanes-Oxley Act of 2002?
A. Stiffer penalties and imprisonment were instituted for white collar crimes.
B. The audit committee must be independent and include a financial expert.
C. Employees are responsible for the financial reporting completed in their
department.
D. CA firms have limitations on non-audit service for audit clients.
10. Which of the following is NOT a current business trend?
A. Total Quality Management
B. Inventories delivered in large quantities at a discount
C. Time sensitivity for purchase, delivery, & service
D. ISO quality standards
11
A. COO.
B. CFO.
C. CEO.
D. CMA.
7. Which of the following skills is NOT required of management accountants?
A. Analytical skills
B. Ability to work on a team
C. Oral and written communication skills
D. Speak a foreign language
8. Management accountants must comply with all of the following ethical standards
EXCEPT:
A. reporting ethical breaches to the CMA.
B. maintaining professional competence.
C. performing duties with credibility.
D. preserving confidentiality of information.
9. Which of the following is NOT an important result of the Sarbanes-Oxley Act of 2002?
A. Stiffer penalties and imprisonment were instituted for white collar crimes.
B. The audit committee must be independent and include a financial expert.
C. Employees are responsible for the financial reporting completed in their
department.
D. CA firms have limitations on non-audit service for audit clients.
10. Which of the following is NOT a current business trend?
A. Total Quality Management
B. Inventories delivered in large quantities at a discount
C. Time sensitivity for purchase, delivery, & service
D. ISO quality standards
Loading page 14...
CHAPTER 2
Building Blocks of Managerial Accounting
CHAPTER OVERVIEW
Chapter 2 begins with a discussion of the three most common business sectors: service,
merchandising, and manufacturing, and describes the types of inventory held by each.
The text then describes the six business activities that comprise the value chain, focusing
on how important, yet costly, each business activity is to perform. Next, the chapter
introduces the concept of cost objects and describes the difference between the direct
costs and indirect costs of any chosen cost object. The first half of the chapter concludes
by describing the difference between period costs (operating expenses) and inventoriable
product costs. Examples of each cost concept are illustrated for both merchandising and
manufacturing companies. The second half of the chapter illustrates the similarities and
differences between the financial statements of service, merchandising and
manufacturing companies. This discussion includes a fully-worked out example of how
manufacturers compute the Cost of Goods Manufactured. The chapter concludes by
discussing other cost concepts frequently used by managers, including controllable versus
uncontrollable costs, relevant versus irrelevant costs, and fixed versus variable costs. All
cost concepts introduced in this chapter will be revisited in later chapters of the text.
LEARNING OBJECTIVES
After studying Chapter 2, your students should be able to:
1. Distinguish among service, merchandising, and manufacturing companies.
2. Describe the value chain and its elements.
3. Distinguish between direct and indirect costs.
4. Identify the inventoriable product costs and period costs of merchandising and
manufacturing firms.
5. Prepare the financial statements for service, merchandising, and manufacturing
companies.
6. Describe costs that are relevant and irrelevant for decision making.
7. Classify costs as fixed or variable and calculate total and average costs at different
volumes.
Building Blocks of Managerial Accounting
CHAPTER OVERVIEW
Chapter 2 begins with a discussion of the three most common business sectors: service,
merchandising, and manufacturing, and describes the types of inventory held by each.
The text then describes the six business activities that comprise the value chain, focusing
on how important, yet costly, each business activity is to perform. Next, the chapter
introduces the concept of cost objects and describes the difference between the direct
costs and indirect costs of any chosen cost object. The first half of the chapter concludes
by describing the difference between period costs (operating expenses) and inventoriable
product costs. Examples of each cost concept are illustrated for both merchandising and
manufacturing companies. The second half of the chapter illustrates the similarities and
differences between the financial statements of service, merchandising and
manufacturing companies. This discussion includes a fully-worked out example of how
manufacturers compute the Cost of Goods Manufactured. The chapter concludes by
discussing other cost concepts frequently used by managers, including controllable versus
uncontrollable costs, relevant versus irrelevant costs, and fixed versus variable costs. All
cost concepts introduced in this chapter will be revisited in later chapters of the text.
LEARNING OBJECTIVES
After studying Chapter 2, your students should be able to:
1. Distinguish among service, merchandising, and manufacturing companies.
2. Describe the value chain and its elements.
3. Distinguish between direct and indirect costs.
4. Identify the inventoriable product costs and period costs of merchandising and
manufacturing firms.
5. Prepare the financial statements for service, merchandising, and manufacturing
companies.
6. Describe costs that are relevant and irrelevant for decision making.
7. Classify costs as fixed or variable and calculate total and average costs at different
volumes.
Loading page 15...
Chapter 2
13
.
TEACHING OUTLINE
1. Distinguish among three types of companies
a. Service
b. Merchandising
i. Retailers
ii. Wholesalers
c. Manufacturing
i. Raw materials inventory (RM)
ii. Work in process inventory (WIP)
iii. Finished goods inventory (FG)
2. Describe the value chain and its elements
a. Research and development
b. Design
c. Production or purchases
d. Marketing
e. Distribution
f. Customer service
g. Coordinating activities across the value chain
3. Defining cost
a. Cost objects, direct costs and indirect costs
4. Identify inventoriable product costs and period costs of merchandising
manufacturing firms
a. Total costs for internal decision making
b. Inventoriable product costs for external reporting
c. Merchandising companies’ inventoriable product costs
d. Manufacturing companies inventoriable product costs
i. Direct materials (DM)
ii. Direct labour (DL)
iii. Manufacturing overhead (MOH)
e. Review inventoriable product costs or period costs
f. Prime and conversion costs
g. Additional labour compensation costs
5. Prepare financial statements for service, merchandising and manufacturing
companies
a. Service company
b. Merchandising companies
c. Manufacturing companies
i. Calculating the cost of goods manufactured
ii. Flow of costs through inventory accounts
13
.
TEACHING OUTLINE
1. Distinguish among three types of companies
a. Service
b. Merchandising
i. Retailers
ii. Wholesalers
c. Manufacturing
i. Raw materials inventory (RM)
ii. Work in process inventory (WIP)
iii. Finished goods inventory (FG)
2. Describe the value chain and its elements
a. Research and development
b. Design
c. Production or purchases
d. Marketing
e. Distribution
f. Customer service
g. Coordinating activities across the value chain
3. Defining cost
a. Cost objects, direct costs and indirect costs
4. Identify inventoriable product costs and period costs of merchandising
manufacturing firms
a. Total costs for internal decision making
b. Inventoriable product costs for external reporting
c. Merchandising companies’ inventoriable product costs
d. Manufacturing companies inventoriable product costs
i. Direct materials (DM)
ii. Direct labour (DL)
iii. Manufacturing overhead (MOH)
e. Review inventoriable product costs or period costs
f. Prime and conversion costs
g. Additional labour compensation costs
5. Prepare financial statements for service, merchandising and manufacturing
companies
a. Service company
b. Merchandising companies
c. Manufacturing companies
i. Calculating the cost of goods manufactured
ii. Flow of costs through inventory accounts
Loading page 16...
Chapter 2
14
d. Balance sheet comparisons
6. Relevant and irrelevant costs
a. Controllable vs. uncontrollable costs
b. Relevant and irrelevant costs
i. Differential cost
ii. Sunk cost
7. Classify costs as fixed or variable costs and calculate total and average costs at
different volumes
a. Behaviour of manufacturing costs
i. Fixed costs
i. Variable costs
b. Calculating total and average costs
KEY TOPICS
Students can never review too many financial statements. The coverage of the
management accountant’s role in service, merchandising and manufacturing companies is
a great time to review the income statement. This can be done by reviewing Exhibits 2-
11, 2-12, and 2-13 and by contrasting the differences. Emphasize the logical flow of all
three types of income statements.
Have students work in teams or with a partner and complete E2-32B Identify types of
companies and their inventories (5 minutes). Call on a student to report the answers.
After discussing product costs (DM, DL, MOH) and period costs, prime costs and
conversion costs, have students complete E2-37B Classify and calculate a
manufacturer’s costs (10 minutes) in teams and report their answers.
Students need to understand that manufacturing companies have a broad range of
production activities that require tracking in three kinds of inventory: raw materials
(RM), work in process (WIP), and finished goods (FG). Students should understand that
all three of these inventories are assets. This is also a good time to explain to students that
finished goods (FG) inventory is an inventoriable product cost with three cost
components: direct materials (DM), direct labour (DL), and manufacturing overhead
(MOH). Explain these three components in detail.
The schedule of cost of goods manufactured summarizes the activities that take place in a
manufacturing plant over the period. Use Exhibits 2-14 and 2-16 to explain the logical
flow of costs in a manufacturing environment. Point out that the first two inventories
(RM and WIP) show up on the schedule, while the third inventory (FG) shows up on the
income statement.
When describing the differences between fixed and variable costs, be sure to reinforce
that these terms illustrate the way in which a cost behaves. If the total cost
14
d. Balance sheet comparisons
6. Relevant and irrelevant costs
a. Controllable vs. uncontrollable costs
b. Relevant and irrelevant costs
i. Differential cost
ii. Sunk cost
7. Classify costs as fixed or variable costs and calculate total and average costs at
different volumes
a. Behaviour of manufacturing costs
i. Fixed costs
i. Variable costs
b. Calculating total and average costs
KEY TOPICS
Students can never review too many financial statements. The coverage of the
management accountant’s role in service, merchandising and manufacturing companies is
a great time to review the income statement. This can be done by reviewing Exhibits 2-
11, 2-12, and 2-13 and by contrasting the differences. Emphasize the logical flow of all
three types of income statements.
Have students work in teams or with a partner and complete E2-32B Identify types of
companies and their inventories (5 minutes). Call on a student to report the answers.
After discussing product costs (DM, DL, MOH) and period costs, prime costs and
conversion costs, have students complete E2-37B Classify and calculate a
manufacturer’s costs (10 minutes) in teams and report their answers.
Students need to understand that manufacturing companies have a broad range of
production activities that require tracking in three kinds of inventory: raw materials
(RM), work in process (WIP), and finished goods (FG). Students should understand that
all three of these inventories are assets. This is also a good time to explain to students that
finished goods (FG) inventory is an inventoriable product cost with three cost
components: direct materials (DM), direct labour (DL), and manufacturing overhead
(MOH). Explain these three components in detail.
The schedule of cost of goods manufactured summarizes the activities that take place in a
manufacturing plant over the period. Use Exhibits 2-14 and 2-16 to explain the logical
flow of costs in a manufacturing environment. Point out that the first two inventories
(RM and WIP) show up on the schedule, while the third inventory (FG) shows up on the
income statement.
When describing the differences between fixed and variable costs, be sure to reinforce
that these terms illustrate the way in which a cost behaves. If the total cost
Loading page 17...
Chapter 2
15
.
increases/decreases as a result of changes in sales/production, then it’s a variable cost (or
a mixed cost). Let them know that sometimes a fixed cost will fluctuate over different
time periods, but that it is not changing as a result of changes in sales/production.
Emphasize that the schedule of cost of goods manufactured must be prepared before the
income statement as it’s needed to compute cost of goods sold for a manufacturer. Work
through an example of a schedule and the income statement on the board.
Suggest your students make and use flashcards for all the definitions/terminology in this
chapter. In addition, some students are overwhelmed when they see a completed income
statement for a manufacturer. Show them how to break it down into smaller pieces and
then put it together. For instance, begin with computing gross profit. S – COGS = GP.
Then show the detail for COGS: Beginning inventory + Purchases = Cost of Goods
Available for Sale – Ending inventory = COGS. Abbreviations can help students as well:
BI + P = GAFS – EI = COGS.
15
.
increases/decreases as a result of changes in sales/production, then it’s a variable cost (or
a mixed cost). Let them know that sometimes a fixed cost will fluctuate over different
time periods, but that it is not changing as a result of changes in sales/production.
Emphasize that the schedule of cost of goods manufactured must be prepared before the
income statement as it’s needed to compute cost of goods sold for a manufacturer. Work
through an example of a schedule and the income statement on the board.
Suggest your students make and use flashcards for all the definitions/terminology in this
chapter. In addition, some students are overwhelmed when they see a completed income
statement for a manufacturer. Show them how to break it down into smaller pieces and
then put it together. For instance, begin with computing gross profit. S – COGS = GP.
Then show the detail for COGS: Beginning inventory + Purchases = Cost of Goods
Available for Sale – Ending inventory = COGS. Abbreviations can help students as well:
BI + P = GAFS – EI = COGS.
Loading page 18...
Chapter 2
16
CHAPTER 2: STUDENT SUMMARY HANDOUT
1. The three most common types of companies
a. Service
b. Merchandising
i. Retailers
ii. Wholesalers
c. Manufacturing
i. Raw materials
ii. Work in process
iii. Finished goods
2. Value Chain
a. Research and Development
b. Design
c. Production or Purchases
d. Marketing
e. Distribution
f. Customer Service
3. Cost Objects
a. Direct Costs
b. Indirect Costs
4. Costs for internal decision making and external reporting
a. Total costs for internal decision making
b. Inventoriable product costs for external reporting
i. Specified inventoriable costs
ii. Period costs (operating expenses)
5. Inventoriable Product Costs for Merchandising Companies
a. Cost of the merchandise itself
b. Freight-in and any import duties
6. Inventoriable Product Costs for Manufacturing Companies
a. Direct Materials
b. Direct Labour
c. Manufacturing Overhead
i. Indirect materials
ii. Indirect labour
iii. Other indirect manufacturing costs
d. Prime and Conversion costs
e. Additional labour compensation costs
16
CHAPTER 2: STUDENT SUMMARY HANDOUT
1. The three most common types of companies
a. Service
b. Merchandising
i. Retailers
ii. Wholesalers
c. Manufacturing
i. Raw materials
ii. Work in process
iii. Finished goods
2. Value Chain
a. Research and Development
b. Design
c. Production or Purchases
d. Marketing
e. Distribution
f. Customer Service
3. Cost Objects
a. Direct Costs
b. Indirect Costs
4. Costs for internal decision making and external reporting
a. Total costs for internal decision making
b. Inventoriable product costs for external reporting
i. Specified inventoriable costs
ii. Period costs (operating expenses)
5. Inventoriable Product Costs for Merchandising Companies
a. Cost of the merchandise itself
b. Freight-in and any import duties
6. Inventoriable Product Costs for Manufacturing Companies
a. Direct Materials
b. Direct Labour
c. Manufacturing Overhead
i. Indirect materials
ii. Indirect labour
iii. Other indirect manufacturing costs
d. Prime and Conversion costs
e. Additional labour compensation costs
Loading page 19...
Chapter 2
17
.
7. Income Statements
a. Service Companies
b. Merchandising Companies
c. Manufacturing Companies
i. Calculating Cost of Goods Manufactured
ii. Flow of costs through the accounts
8. Comparing Balance Sheets
9. Other Cost Terms
a. Controllable versus uncontrollable costs
b. Relevant and irrelevant costs
c. Fixed and variable costs
d. Calculating total and average costs
17
.
7. Income Statements
a. Service Companies
b. Merchandising Companies
c. Manufacturing Companies
i. Calculating Cost of Goods Manufactured
ii. Flow of costs through the accounts
8. Comparing Balance Sheets
9. Other Cost Terms
a. Controllable versus uncontrollable costs
b. Relevant and irrelevant costs
c. Fixed and variable costs
d. Calculating total and average costs
Loading page 20...
Chapter 2
18
CHAPTER 2: ASSIGNMENT GRID
Assignment Topic(s) Learning
Objective(s)
Estimated
Time in
Minutes(s)
Level of
Difficulty
Available in
Excel
Templates
Short Exercises
S2-1 Identify type of company
from balance sheets
1 5 Easy
S2-2 Identify types of companies
& inventories
1 5 Easy
S2-3 Label value chain functions 2 5 Easy
S2-4 Classify costs by value chain
functions
2 5 Easy
S2-5 Classify costs as either direct
or indirect
3 5 Easy
S2-6 Classify inventoriable
product costs and period
costs
4 5 Easy
S2-7 Classify a manufacturer’s
cost
4 5 Easy
S2-8 Classify costs incurred by
a dairy processing
company
4 5 Easy
S2-9 Determine total
manufacturing overhead
4 5 Easy
S2-10 Compute Cost of Goods
Sold for a merchandiser
5 5 Easy
S2-11 Prepare a retailer’s
income statement
5 5 Easy
S2-12 Calculate direct materials
used
5 5 Easy
S2-13 Compute Cost of Goods
Manufactured
5 5 Easy
S2-14 Consider relevant
information
6 5 Easy
S2-15 Classify costs as fixed or
variable
7 5 Easy
Exercises (Set A)
E2-16A Identify types of
companies and their
inventories
1 5 Easy
E2-17A Classify costs along the
value chain for a retailer
2 10 Easy
E2-18A Classify costs along the
value chain for a
2 & 3 10 Easy
18
CHAPTER 2: ASSIGNMENT GRID
Assignment Topic(s) Learning
Objective(s)
Estimated
Time in
Minutes(s)
Level of
Difficulty
Available in
Excel
Templates
Short Exercises
S2-1 Identify type of company
from balance sheets
1 5 Easy
S2-2 Identify types of companies
& inventories
1 5 Easy
S2-3 Label value chain functions 2 5 Easy
S2-4 Classify costs by value chain
functions
2 5 Easy
S2-5 Classify costs as either direct
or indirect
3 5 Easy
S2-6 Classify inventoriable
product costs and period
costs
4 5 Easy
S2-7 Classify a manufacturer’s
cost
4 5 Easy
S2-8 Classify costs incurred by
a dairy processing
company
4 5 Easy
S2-9 Determine total
manufacturing overhead
4 5 Easy
S2-10 Compute Cost of Goods
Sold for a merchandiser
5 5 Easy
S2-11 Prepare a retailer’s
income statement
5 5 Easy
S2-12 Calculate direct materials
used
5 5 Easy
S2-13 Compute Cost of Goods
Manufactured
5 5 Easy
S2-14 Consider relevant
information
6 5 Easy
S2-15 Classify costs as fixed or
variable
7 5 Easy
Exercises (Set A)
E2-16A Identify types of
companies and their
inventories
1 5 Easy
E2-17A Classify costs along the
value chain for a retailer
2 10 Easy
E2-18A Classify costs along the
value chain for a
2 & 3 10 Easy
Loading page 21...
Chapter 2
19
.
Assignment Topic(s) Learning
Objective(s)
Estimated
Time in
Minutes(s)
Level of
Difficulty
Available in
Excel
Templates
manufacturer
E2-19A Classify costs as direct or
indirect
3 5 Easy X
E2-20A Define cost terms 3 & 4 10 Easy
E2-21A Classify and calculate a
manufacturer’s costs
3 & 4 10 Easy
E2-22A Prepare the current assets
section of the balance
sheet
5 10 Medium X
E2-23A Prepare a retailer’s
income statement
5 10 Medium X
E2-24A Compute direct materials
used and cost of goods
manufactured
5 10 Medium
E2-25A Compute cost of goods
manufactured and cost of
goods sold
5 10 Medium
E2-26A Continues E2-25A:
Prepare income statement
5 10 Medium
E2-27A Work backwards to find
missing amounts
5 10 Medium
E2-28A Determine whether
information is relevant
6 5 Easy
E2-29A Describe other cost terms 6 & 7 5 Easy
E2-30A Classify costs as fixed or
variable
7 10 Medium X
E2-31A Compute total and
average costs
7 10 Medium
Exercises (Set B)
E2-32B Identify types of
companies and their
inventories
1 5 Easy
E2-33B Classify costs along the
value chain for a retailer
2 10 Easy
E2-34B Classify costs along the
value chain for a
manufacturer
2 & 3 10 Easy
E2-35B Classify costs as direct or
indirect
3 5 Easy
E2-36B Define cost terms 3 & 4 10 Easy
E2-37B Classify and calculate a
manufacturer’s costs
3 & 4 10 Easy
19
.
Assignment Topic(s) Learning
Objective(s)
Estimated
Time in
Minutes(s)
Level of
Difficulty
Available in
Excel
Templates
manufacturer
E2-19A Classify costs as direct or
indirect
3 5 Easy X
E2-20A Define cost terms 3 & 4 10 Easy
E2-21A Classify and calculate a
manufacturer’s costs
3 & 4 10 Easy
E2-22A Prepare the current assets
section of the balance
sheet
5 10 Medium X
E2-23A Prepare a retailer’s
income statement
5 10 Medium X
E2-24A Compute direct materials
used and cost of goods
manufactured
5 10 Medium
E2-25A Compute cost of goods
manufactured and cost of
goods sold
5 10 Medium
E2-26A Continues E2-25A:
Prepare income statement
5 10 Medium
E2-27A Work backwards to find
missing amounts
5 10 Medium
E2-28A Determine whether
information is relevant
6 5 Easy
E2-29A Describe other cost terms 6 & 7 5 Easy
E2-30A Classify costs as fixed or
variable
7 10 Medium X
E2-31A Compute total and
average costs
7 10 Medium
Exercises (Set B)
E2-32B Identify types of
companies and their
inventories
1 5 Easy
E2-33B Classify costs along the
value chain for a retailer
2 10 Easy
E2-34B Classify costs along the
value chain for a
manufacturer
2 & 3 10 Easy
E2-35B Classify costs as direct or
indirect
3 5 Easy
E2-36B Define cost terms 3 & 4 10 Easy
E2-37B Classify and calculate a
manufacturer’s costs
3 & 4 10 Easy
Loading page 22...
Chapter 2
20
Assignment Topic(s) Learning
Objective(s)
Estimated
Time in
Minutes(s)
Level of
Difficulty
Available in
Excel
Templates
E2-38B Prepare the current assets
section of the balance
sheet
5 10 Medium
E2-39B Prepare a retailer’s
income statement
5 10 Medium
E2-40B Compute direct materials
used and cost of goods
manufactured
5 10 Medium
E2-41B Compute cost of goods
manufactured and cost of
goods sold
5 10 Medium
E2-42B Continues E2-41B:
Prepare income statement
5 10 Medium
E2-43B Work backwards to find
missing amounts
5 10 Medium
E2-44B Determine whether
information is relevant
6 5 Easy
E2-45B Describe other cost terms 6 & 7 5 Easy
E2-46B Classify costs as fixed or
variable
7 10 Medium
E2-47B Compute total and
average costs
7 10 Medium
Problems (Set A)
P2-48A Classify costs along the
value chain
2 & 4 10 Medium
P2-49A Prepare income
statements
5 10 Difficult
P2-50A Fill in missing amounts 5 15 Medium
P2-51A Identify relevant
information
6 15-20 Difficult
P2-52A Calculate the total and
average costs
7 15 Difficult
Problems (Set B)
P2-53B Classify costs along the
value chain
2 & 4 10 Medium
P2-54B Prepare income
statements
5 10 Difficult
20
Assignment Topic(s) Learning
Objective(s)
Estimated
Time in
Minutes(s)
Level of
Difficulty
Available in
Excel
Templates
E2-38B Prepare the current assets
section of the balance
sheet
5 10 Medium
E2-39B Prepare a retailer’s
income statement
5 10 Medium
E2-40B Compute direct materials
used and cost of goods
manufactured
5 10 Medium
E2-41B Compute cost of goods
manufactured and cost of
goods sold
5 10 Medium
E2-42B Continues E2-41B:
Prepare income statement
5 10 Medium
E2-43B Work backwards to find
missing amounts
5 10 Medium
E2-44B Determine whether
information is relevant
6 5 Easy
E2-45B Describe other cost terms 6 & 7 5 Easy
E2-46B Classify costs as fixed or
variable
7 10 Medium
E2-47B Compute total and
average costs
7 10 Medium
Problems (Set A)
P2-48A Classify costs along the
value chain
2 & 4 10 Medium
P2-49A Prepare income
statements
5 10 Difficult
P2-50A Fill in missing amounts 5 15 Medium
P2-51A Identify relevant
information
6 15-20 Difficult
P2-52A Calculate the total and
average costs
7 15 Difficult
Problems (Set B)
P2-53B Classify costs along the
value chain
2 & 4 10 Medium
P2-54B Prepare income
statements
5 10 Difficult
Loading page 23...
Chapter 2
21
.
Assignment Topic(s) Learning
Objective(s)
Estimated
Time in
Minutes(s)
Level of
Difficulty
Available in
Excel
Templates
P2-55B Fill in missing amounts 5 15 Medium
P2-56B Identify relevant
information
6 15-20 Difficult
P2-57B Calculate the total and
average costs
7 15 Difficult
Other
Decision Case
C2-58
Determine ending
inventory balances
5 15 Medium
Discussion
and Analysis All 60 Medium
Application
and Analysis
All 30-60 Medium
21
.
Assignment Topic(s) Learning
Objective(s)
Estimated
Time in
Minutes(s)
Level of
Difficulty
Available in
Excel
Templates
P2-55B Fill in missing amounts 5 15 Medium
P2-56B Identify relevant
information
6 15-20 Difficult
P2-57B Calculate the total and
average costs
7 15 Difficult
Other
Decision Case
C2-58
Determine ending
inventory balances
5 15 Medium
Discussion
and Analysis All 60 Medium
Application
and Analysis
All 30-60 Medium
Loading page 24...
Chapter 2
22
ANSWER KEY TO CHAPTER 2 QUIZ (Quiz on following pages.)
1. B
2. D
3. C
4. A
5. A
6. A
7. B
8. D
9. D
10. B
22
ANSWER KEY TO CHAPTER 2 QUIZ (Quiz on following pages.)
1. B
2. D
3. C
4. A
5. A
6. A
7. B
8. D
9. D
10. B
Loading page 25...
Chapter 2
23
.
Name_________________________ Date_______________ Section_______________
CHAPTER 2
TEN-MINUTE QUIZ
Circle the letter of the best response.
1. A portion of a company’s inventory is shown below:
Sales $350,000
Cost of Goods Sold:
Beginning Inventory $ 15,000
Purchases 250,000
Cost of Goods Available for Sale 265,000
Less: Ending Inventory 13,000
Cost of Goods Sold 252,000
Gross Profit $ 98,000
What type of company is illustrated?
A. Service Corporation
B. Merchandising Corporation
C. Manufacturing Corporation
D. Not-for-profit Corporation
2. Which of the following is NOT a value chain activity?
A. Research & Development
B. Production
C. Distribution
D. Quality Control
3. Which of the following is a direct cost in the production of tire jacks for a
machine shop?
A. Utilities
B. Taxes
C. Steel
D. Rent
4. Which of the following is an indirect cost in the construction cost of a home for a
building company?
A. Insurance
B. Paint
C. Lumber
D. Carpeting
23
.
Name_________________________ Date_______________ Section_______________
CHAPTER 2
TEN-MINUTE QUIZ
Circle the letter of the best response.
1. A portion of a company’s inventory is shown below:
Sales $350,000
Cost of Goods Sold:
Beginning Inventory $ 15,000
Purchases 250,000
Cost of Goods Available for Sale 265,000
Less: Ending Inventory 13,000
Cost of Goods Sold 252,000
Gross Profit $ 98,000
What type of company is illustrated?
A. Service Corporation
B. Merchandising Corporation
C. Manufacturing Corporation
D. Not-for-profit Corporation
2. Which of the following is NOT a value chain activity?
A. Research & Development
B. Production
C. Distribution
D. Quality Control
3. Which of the following is a direct cost in the production of tire jacks for a
machine shop?
A. Utilities
B. Taxes
C. Steel
D. Rent
4. Which of the following is an indirect cost in the construction cost of a home for a
building company?
A. Insurance
B. Paint
C. Lumber
D. Carpeting
Loading page 26...
Chapter 2
24
5. Which of the following companies has all costs along the value chain accounted
for as period costs?
A. Service Corporation
B. Merchandising Corporation
C. Manufacturing Corporation
D. None of the above
6. A manufacturer would treat direct materials, direct labour, and overhead as:
A. inventoriable product costs.
B. period costs.
C. both inventoriable product and period costs.
D. neither inventoriable product nor period costs.
7. Which of the following is NOT a relevant cost when buying new manufacturing
equipment?
A. Sales tax
B. Cost of machine being replaced
C. Purchase price
D. Insurance on the machine
8. Which of the following is a fixed cost for a plant that manufactures iPods?
A. Plastic used to make the cases
B. Employee wages for assembly
C. Computer chip used in each iPod
D. Straight-line depreciation on stamping machine used to form iPod cases
9. Which of the following is a variable cost for a plant that manufactures iPods?
A. Advertising costs
B. Salary of payroll clerk
C. Straight line depreciation of warehouse building
D. Wire used for the headphones
10. Rocketspray’s manufacturing costs for July are:
* Materials cost: $4,000
* Labour cost: $3,200
* Overhead: $800
If Rocketspray’s one plant employee manufactured 10 bottles per hour, and
worked 8 hours per day for 20 days in July, what is the cost per bottle?
A. $3 C. $20
B. $5 D. $24
24
5. Which of the following companies has all costs along the value chain accounted
for as period costs?
A. Service Corporation
B. Merchandising Corporation
C. Manufacturing Corporation
D. None of the above
6. A manufacturer would treat direct materials, direct labour, and overhead as:
A. inventoriable product costs.
B. period costs.
C. both inventoriable product and period costs.
D. neither inventoriable product nor period costs.
7. Which of the following is NOT a relevant cost when buying new manufacturing
equipment?
A. Sales tax
B. Cost of machine being replaced
C. Purchase price
D. Insurance on the machine
8. Which of the following is a fixed cost for a plant that manufactures iPods?
A. Plastic used to make the cases
B. Employee wages for assembly
C. Computer chip used in each iPod
D. Straight-line depreciation on stamping machine used to form iPod cases
9. Which of the following is a variable cost for a plant that manufactures iPods?
A. Advertising costs
B. Salary of payroll clerk
C. Straight line depreciation of warehouse building
D. Wire used for the headphones
10. Rocketspray’s manufacturing costs for July are:
* Materials cost: $4,000
* Labour cost: $3,200
* Overhead: $800
If Rocketspray’s one plant employee manufactured 10 bottles per hour, and
worked 8 hours per day for 20 days in July, what is the cost per bottle?
A. $3 C. $20
B. $5 D. $24
Loading page 27...
CHAPTER 3
Job Costing
CHAPTER OVERVIEW
This chapter outlines the two basic costing systems: job costing and process costing. Job
costing is used when relatively small quantities of unique products are manufactured.
Process costing is used when large quantities of homogeneous products are
manufactured.
The chapter begins by comparing and contrasting job costing and process costing. Next,
the chapter explains the documents and system used to trace direct materials and direct
labour to specific jobs. The text reviews how manufacturing overhead is allocated to each
job using a predetermined overhead rate. Job cost information is then used to make
various business decisions.
The second half of the chapter discusses the how over- and underallocated manufacturing
overhead, is typically closed to cost of goods sold. The final section of the chapter
illustrates all journal entries associated with a job costing system. Finally, the appendix
illustrates job costing at a service company (law firm).
LEARNING OBJECTIVES
After studying Chapter 3, your students should be able to:
1. Distinguish between job costing and process costing.
2. Understand the flow of production and how direct materials and direct labour
are traced to jobs.
3. Compute a predetermined manufacturing overhead rate and use it to allocate
MOH to jobs.
4. Determine the cost of a job and use it to make business decisions.
5. Compute and dispose of overallocated or underallocated manufacturing
overhead.
6. Prepare journal entries for a manufacturer’s job costing system.
7. (Appendix) Use job costing at a service firm as a basis for billing clients.
TEACHING OUTLINE
1. Distinguish between job costing and process costing
a. Process costing
b. Job costing
Job Costing
CHAPTER OVERVIEW
This chapter outlines the two basic costing systems: job costing and process costing. Job
costing is used when relatively small quantities of unique products are manufactured.
Process costing is used when large quantities of homogeneous products are
manufactured.
The chapter begins by comparing and contrasting job costing and process costing. Next,
the chapter explains the documents and system used to trace direct materials and direct
labour to specific jobs. The text reviews how manufacturing overhead is allocated to each
job using a predetermined overhead rate. Job cost information is then used to make
various business decisions.
The second half of the chapter discusses the how over- and underallocated manufacturing
overhead, is typically closed to cost of goods sold. The final section of the chapter
illustrates all journal entries associated with a job costing system. Finally, the appendix
illustrates job costing at a service company (law firm).
LEARNING OBJECTIVES
After studying Chapter 3, your students should be able to:
1. Distinguish between job costing and process costing.
2. Understand the flow of production and how direct materials and direct labour
are traced to jobs.
3. Compute a predetermined manufacturing overhead rate and use it to allocate
MOH to jobs.
4. Determine the cost of a job and use it to make business decisions.
5. Compute and dispose of overallocated or underallocated manufacturing
overhead.
6. Prepare journal entries for a manufacturer’s job costing system.
7. (Appendix) Use job costing at a service firm as a basis for billing clients.
TEACHING OUTLINE
1. Distinguish between job costing and process costing
a. Process costing
b. Job costing
Loading page 28...
Chapter 3
26
2. Understand the flow of production and how direct materials and direct labour are
traced to jobs
a. Flow of inventory through a manufacturing system
b. Using a job cost record to accumulate
i. Tracing direct materials cost to a job
ii. Tracing direct labour cost to a job
3. Compute a predetermined manufacturing overhead (MOH) rate and use it to
allocate MOH to jobs
a. Explain what allocating means
b. Steps to allocating MOH
i. Step 1) The company estimates its total MOH costs for the coming
year.
ii. Step 2) The company selects an allocation base and estimates the
total amount that will be used during the year.
iii. Step 3) The company calculates its predetermined MOH rate using
the information estimated in Steps 1 and 2.
iv. Step 4) The company allocates some MOH to each individual job.
c. Discuss the point in time at which MOH is allocated to jobs
4. Determine the cost of a job and use it to make business decisions
a. Reducing future job costs
b. Assessing and comparing the profitability of each model
c. Dealing with pricing pressure from competitors
d. Allowing discounts on high volume sales
e. Bidding for custom orders
f. Preparing the financial statements
5. Compute and dispose of overallocated or underallocated manufacturing overhead
a. Underallocated MOH
b. Overallocated MOH
c. Adjusting Cost of Goods Sold in most cases
6. Prepare journal entries for a manufacturer’s job costing system
a. Purchase of raw materials
b. Use of direct materials
c. Use of indirect materials
d. Use of direct labour
e. Use of indirect labour
f. Incurring other MOH costs
g. Allocating MOH to jobs
h. Completion of jobs
i. Sale of units
j. Operating expenses
k. Closing MOH
26
2. Understand the flow of production and how direct materials and direct labour are
traced to jobs
a. Flow of inventory through a manufacturing system
b. Using a job cost record to accumulate
i. Tracing direct materials cost to a job
ii. Tracing direct labour cost to a job
3. Compute a predetermined manufacturing overhead (MOH) rate and use it to
allocate MOH to jobs
a. Explain what allocating means
b. Steps to allocating MOH
i. Step 1) The company estimates its total MOH costs for the coming
year.
ii. Step 2) The company selects an allocation base and estimates the
total amount that will be used during the year.
iii. Step 3) The company calculates its predetermined MOH rate using
the information estimated in Steps 1 and 2.
iv. Step 4) The company allocates some MOH to each individual job.
c. Discuss the point in time at which MOH is allocated to jobs
4. Determine the cost of a job and use it to make business decisions
a. Reducing future job costs
b. Assessing and comparing the profitability of each model
c. Dealing with pricing pressure from competitors
d. Allowing discounts on high volume sales
e. Bidding for custom orders
f. Preparing the financial statements
5. Compute and dispose of overallocated or underallocated manufacturing overhead
a. Underallocated MOH
b. Overallocated MOH
c. Adjusting Cost of Goods Sold in most cases
6. Prepare journal entries for a manufacturer’s job costing system
a. Purchase of raw materials
b. Use of direct materials
c. Use of indirect materials
d. Use of direct labour
e. Use of indirect labour
f. Incurring other MOH costs
g. Allocating MOH to jobs
h. Completion of jobs
i. Sale of units
j. Operating expenses
k. Closing MOH
Loading page 29...
Chapter 3
27
7. (Appendix) Use job costing at a service firm as a basis for billing clients
a. Direct costs are traced to the client’s job
b. Indirect costs are allocated to the client’s job
i. Step1) Estimate the total indirect costs for the coming year.
ii. Step 2) Choose an allocation base and estimate the total amount
that will be used during the year.
iii. Step 3) Compute the predetermined indirect cost allocation rate.
iv. Step 4) Allocate indirect costs to client jobs using the
predetermined rate.
c. Finding the total cost of the job and adding a profit
d. Invoicing the client using a professional billing rate
e. Journal entries needed in a service firm’s job costing system
KEY TOPICS
Make it clear to students that both a job costing system and a process costing system
provide the same basic production costing information. The difference in the two systems
is the way they accumulate the costs. The first major distinction between the two systems
is quantity and uniqueness of product while the second is costing. Process costing is used
when large quantities of homogeneous product are produced; the total costs are divided
by the quantity produced to give the average cost. Job costing is used by companies that
produce smaller quantities of relatively unique products which vary in the manufacturing
resources required. Direct materials (DM) and direct labour (DL) costs are traced to the
product while manufacturing overhead is allocated to the product using a predetermined
manufacturing overhead rate.
Have students work in teams or with a partner and complete E3-32B Identify type of
costing system (5 minutes). Call on a student to report the answers.
Stress that there are three product or manufacturing costs: DM, DL, and MOH. Keep
repeating this throughout the chapter presentation. All manufacturing costs flow into the
WIP inventory account. MOH is allocated to jobs based on a predetermined rate using
estimated data.
Students are typically confused as to why overhead needs to be allocated rather than
added directly to jobs as it is used. Explain that this is a timing problem. Companies need
the cost information for decision making before the actual costs are known. Use E3-44B
Analyze manufacturing overhead to illustrate how the MOH rate is predetermined and
then how it’s used. Help students to understand that debits to the MOH account represent
actual (or incurred) MOH costs and credits to the MOH account represent allocated
MOH. Draw a T-account on the board and write “actual” on the debit side and
“allocated” on the credit side. Enter the MOH entries into the T-account to show students
how to determine whether MOH was over- or underallocated. Emphasize that the account
is temporary and how to close the account at the end of the period.
27
7. (Appendix) Use job costing at a service firm as a basis for billing clients
a. Direct costs are traced to the client’s job
b. Indirect costs are allocated to the client’s job
i. Step1) Estimate the total indirect costs for the coming year.
ii. Step 2) Choose an allocation base and estimate the total amount
that will be used during the year.
iii. Step 3) Compute the predetermined indirect cost allocation rate.
iv. Step 4) Allocate indirect costs to client jobs using the
predetermined rate.
c. Finding the total cost of the job and adding a profit
d. Invoicing the client using a professional billing rate
e. Journal entries needed in a service firm’s job costing system
KEY TOPICS
Make it clear to students that both a job costing system and a process costing system
provide the same basic production costing information. The difference in the two systems
is the way they accumulate the costs. The first major distinction between the two systems
is quantity and uniqueness of product while the second is costing. Process costing is used
when large quantities of homogeneous product are produced; the total costs are divided
by the quantity produced to give the average cost. Job costing is used by companies that
produce smaller quantities of relatively unique products which vary in the manufacturing
resources required. Direct materials (DM) and direct labour (DL) costs are traced to the
product while manufacturing overhead is allocated to the product using a predetermined
manufacturing overhead rate.
Have students work in teams or with a partner and complete E3-32B Identify type of
costing system (5 minutes). Call on a student to report the answers.
Stress that there are three product or manufacturing costs: DM, DL, and MOH. Keep
repeating this throughout the chapter presentation. All manufacturing costs flow into the
WIP inventory account. MOH is allocated to jobs based on a predetermined rate using
estimated data.
Students are typically confused as to why overhead needs to be allocated rather than
added directly to jobs as it is used. Explain that this is a timing problem. Companies need
the cost information for decision making before the actual costs are known. Use E3-44B
Analyze manufacturing overhead to illustrate how the MOH rate is predetermined and
then how it’s used. Help students to understand that debits to the MOH account represent
actual (or incurred) MOH costs and credits to the MOH account represent allocated
MOH. Draw a T-account on the board and write “actual” on the debit side and
“allocated” on the credit side. Enter the MOH entries into the T-account to show students
how to determine whether MOH was over- or underallocated. Emphasize that the account
is temporary and how to close the account at the end of the period.
Loading page 30...
Chapter 3
28
The job cost record is the subsidiary ledger supporting the Work in Process (WIP)
general ledger account. The job cost records are used to “prove” the WIP balance. The
subsidiary ledger keeps track of the specific jobs being produced by the company.
Have students work in teams to solve E3-41B Determine the cost of a job (15 minutes).
Ask students to explain the differences between the recording for materials and labour.
Over- or underallocated MOH at the end of the period should, in theory, be divided
among Finished Goods (FG), WIP, and Cost of Goods Sold (COGS) in proportion to
their ending balances because these are the accounts in which the MOH costs lie. In
reality, because most of the jobs have been sold, companies will close the MOH to COGS
only.
Most of the accounts involved in a job order costing system can be characterized as cost
accounts. Relating cost accounts to expense accounts and asset accounts can help
students quickly grasp the accounting flows. Use E3-48B Analyze T-accounts to
illustrate the flow.
Illustrate job costing in a service firm by using a maid service as an example.
1. Estimate total indirect costs-office rent, insurance, etc. For example, estimate
$100,000.
2. Identify a cost allocation base-for example, number of homes cleaned per year.
3. Estimate total quantity of the indirect cost allocation base-for example, 1,000
homes.
4. Compute the predetermined indirect cost allocation rate: $100,000/1,000 = $100
per property.
5. Obtain the actual quantity of the cost allocation base used by individual jobs-for
example, 995 homes cleaned.
6. Allocate indirect cost to jobs-for example, if 995 homes were cleaned and the
allocation rate is $100 per property, the amount allocated to overhead would be
$99,500.
Students are interested to know that the cost mark-up varies greatly by industry. In the
chapter they learn that the cross-trainer that sells for $1,900 cost the company $1,160 to
produce. However, students tend to forget that the markup of $740 is not all profit, but
must cover sales commissions as well as other non-inventoriable costs.
28
The job cost record is the subsidiary ledger supporting the Work in Process (WIP)
general ledger account. The job cost records are used to “prove” the WIP balance. The
subsidiary ledger keeps track of the specific jobs being produced by the company.
Have students work in teams to solve E3-41B Determine the cost of a job (15 minutes).
Ask students to explain the differences between the recording for materials and labour.
Over- or underallocated MOH at the end of the period should, in theory, be divided
among Finished Goods (FG), WIP, and Cost of Goods Sold (COGS) in proportion to
their ending balances because these are the accounts in which the MOH costs lie. In
reality, because most of the jobs have been sold, companies will close the MOH to COGS
only.
Most of the accounts involved in a job order costing system can be characterized as cost
accounts. Relating cost accounts to expense accounts and asset accounts can help
students quickly grasp the accounting flows. Use E3-48B Analyze T-accounts to
illustrate the flow.
Illustrate job costing in a service firm by using a maid service as an example.
1. Estimate total indirect costs-office rent, insurance, etc. For example, estimate
$100,000.
2. Identify a cost allocation base-for example, number of homes cleaned per year.
3. Estimate total quantity of the indirect cost allocation base-for example, 1,000
homes.
4. Compute the predetermined indirect cost allocation rate: $100,000/1,000 = $100
per property.
5. Obtain the actual quantity of the cost allocation base used by individual jobs-for
example, 995 homes cleaned.
6. Allocate indirect cost to jobs-for example, if 995 homes were cleaned and the
allocation rate is $100 per property, the amount allocated to overhead would be
$99,500.
Students are interested to know that the cost mark-up varies greatly by industry. In the
chapter they learn that the cross-trainer that sells for $1,900 cost the company $1,160 to
produce. However, students tend to forget that the markup of $740 is not all profit, but
must cover sales commissions as well as other non-inventoriable costs.
Loading page 31...
28 more pages available. Scroll down to load them.
Preview Mode
Sign in to access the full document!
100%
Study Now!
XY-Copilot AI
Unlimited Access
Secure Payment
Instant Access
24/7 Support
AI Assistant
Document Details
Subject
Accounting