Muhammad Naeem Sarwar

Managerial Accounting
Module 2
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Exercises:
1. Exercise E3-28A, page 144: Recording journal entries
Te journal entries !or eac transaction are "#raun, Tiet$ % &arrison, 2'1', p.114(:
)E*+R,-T,./ )E#,T +RE),T
a. Ra0 Materials ,n1entor2 13','''
Accounts -a2a4le 13','''
4. 5or6 in -rocess ,n1entor2 172,'''
Manu!acturing .1eread 22,'''
Ra0 Materials ,n1entor2 184,'''
c. 5or6 in -rocess ,n1entor2 13','''
Manu!acturing .1eread 37,'''
5ages -a2a4le 227,'''
d. Manu!acturing .1eread 3','''
Accu9ulated )epreciation--lant and E:uip9ent 2','''
Accounts -a2a4le 1','''
e. 5or6 in -rocess ,n1entor2 81,'''
Manu!acturing .1eread 81,'''
MA/;<A+T;R,/= .>ER&EA)
"A+T;A?( "A??.+ATE)(
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22,'''
37,'''
3','''
81,'''
@,'''
Tere!ore, 42 te end o! Aanuar2, te 9anu!acturing o1eread 0as underallocated 42
@,'''.
2. Exercise *4-13, page 2'3: Bualit2 ,nitiati1e )ecision
Te costs can 4e classi!ied in te !ollo0ing categories "#raun, Tiet$ % &arrison, 2'1',
p.2'3(:
-re1ention +osts:
/egotiating 0it and training suppliers to o4tain iger-:ualit2 9aterials and on-
ti9e deli1er2
Redesigning te spea6ers to 9a6e te9 easier to 9anu!acture
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Appraisal +osts:
Additional 2' 9inutes o! testing !or eac spea6er
A1oid inspection o! ra0 9aterials
,nternal <ailure +osts:
Re0or6 a1oided 4ecause o! !e0er de!ecti1e units
?ost production ti9e due to re0or6
External <ailure +osts:
Reduced 0arrant2 repair costs
?ost sales due to disappointed custo9ers
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)E*+R,-T,./
A)),T,./A? "+.*T*(
A/) +.*T *A>,/=*
T.TA? /E5 "+.*T*(
.R +.*T *A>,/=*
-re1ention costs:
/egotiating 0it and training suppliers
to o4tain iger-:ualit2 9aterials and
on-ti9e deli1er2
Redesigning te spea6ers to 9a6e
te9 easier to 9anu!acture
Total additional pre1ention costs
C "3'','''(
"1,4'',''' (
C "1,8'','''(
Appraisal costs:
Additional 2' 9inutes o! testing !or
eac spea6er
A1oid inspection o! ra0 9aterials
C "@'','''(
4'','''

"@'','''(
4'','''
,nternal <ailure costs:
Re0or6 a1oided 4ecause o! !e0er
de!ecti1e units
?ost production ti9e due to 0or6
Total internal !ailure cost sa1ings
C @7','''
3'','''
37','''
External <ailure costs:
Reduced 0arrant2 repair costs
?ost sales due to disappointed
custo9ers
Total external !ailure cost sa1ings
Total cost sa1ings !ro9 :ualit2 progra9
C 2'','''
87','''
1,'7','''
C 1'','''
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Tere!ore, 5ar!edale sould i9ple9ent te :ualit2 progra9 4ecause te2 can sa1e C
1'','''.
3. Exercises *4-11, *4-12 and *4-13, pages 2'8-2'8: Mission, ,nc. co9putations
,ndirect cost allocation rate:
DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD
,ndirect cost allocation rate E Total esti9ated indirect costs
Total esti9ated acti1it2 allocation 4ase
E C8'@,''' E 141.2' F our
7,''' ours
DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD
Total costs:
5e44 =reg
)irect la4or "1'' ours G C37' F our( C37,''' C37,'''
,ndirect costs "1'' ours G C141.2' F our( 14,12' 14,12'
Total costs C43,12' C43,12'
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.perating inco9e:
5e44 =reg
+onsultants re1enue "17'H G C37,'''( C72,7'' C72,7''
Total costs "direct I indirect( costs 43,12' 43,12'
.perating inco9e
C 3,38' C 3,38'
+lues:
Te !ollo0ing clues or signals indicate tat MissionJs cost s2ste9 9a2 4e K4ro6enL
"#raun, Tiet$ % &arrison, 2'1', p.2'8(:
Teir client, Aerr2 5e44, is unapp2 0it te !ees carged 42 te Mission 0ile
teir oter client, Meit =reg, is app2 0it te !ees. &ere te :uestion arises
0eter Aerr2 5e44Js !ees is ig or Meit =regJs !ees is lo0.
Te MissionJs 9ajor co9petitor, )elta Applications, can undercut MissionJs rates
and still 9a6e pro!it.
Te Mission is surprised 42 its clientJs "Meit =reg( co9pli9ent e1en toug te
jo4 0as co9plex and te Mission !elt uneas2 accepting it in te !irst place.
Te MissionNs costing s2ste9 9igt 4e outdated as it is 4eing used since its
esta4lis9ent in 1337
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+ost allocation rate:
DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD
+ost o! allocation rate using A#+ s2ste9 E Esti9ated cost o! acti1it2
Esti9ated :uantit2 o! allocation 4ase
+ost o! allocation rate !or )ocu9ent -reparation E C1'',''' O 3,127 pages

E C 32 F page

+ost o! allocation rate !or ,n!or9ation tecnolog2 support E C17@,''' O 88'

E C 2'' F application
+ost o! allocation rate !or Training E C47',''' O 7,''' ours

E C 3' F ours
DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD
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4. Exercise -7-43A, page 287: -rocess costing in a single processing depart9ent
5inter ?ips Ti9e ?ine:


*tart 4'H +o9plete 1''H +o9plete
Direct materials added



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+on1ersion costs added e1enl2 trougout process
7,2'' units started 4ut not !inised
"ending 0or6 in process in1entor2(
17,2'' units co9pleted and trans!erred out
Total E:ui1alent ;nits:
5,/TER ?,-* #A?M )E-ARTME/T
Mont Ended Aune 3'
Flow of Production
Step 1
Step 2
Equivalent nits
Flow of Ph!sical
nits
Direct
Materials
"onversion
"osts
;nits accounted !or:
+o9pleted and trans!erred out during Aune
Ending 0or6 in process, Aune 3'
Total p2sical units accounted !or
#otal equivalent units
17,2''
7,2''
2',4''
17,2''
7,2''
2$%&$$
17,2''
2,'8'
P
1'%2($
P7,2'' units eac 4'H co9plete E 2,'8' e:ui1alent units
+ost per e:ui1alent unit:
5,/TER ?,-* #A?M )E-ARTME/T
Mont Ended Aune 3'
Direct
Materials
"onversion
"osts
#eginning 0or6 in process Aune 1
+osts added during Aune:
#otal costs to account for
)i1ided 42 total e:ui1alent units
"ost per equivalent unit
C '
4,'8'
) &%$($
O 2',4''
) $ *2
C '
4,32' P
) &%+2$
O 18,28'
) $ *2,
PC3,317 direct la4or I C1,''7 o! 9anu!acturing o1eread E C4,32' o! con1ersion cost
5,/TER ?,-* #A?M )E-ARTME/T
Mont Ended Aune 3'
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Direct
Materials
"onversion
"osts
#otal
-a. nits completed and transferred out -1,%2$$.
Ending 0or6 in process in1entor2 "7,2''(:
)irect 9aterials
+on1ersion costs
-/. #otal cost of endin0 wor1 in process
Total costs accounted !or
Q17,2'' x "C'.2 I C'.27(R11111j
Q7,2'' x C'.2'R111111111111
QC2,'8' x C'.27R

2 )3%(&$ .''''''
E C 1,'4'.'''''
E 72' .'''''
2 )1%,3$ *$$$$$$
E C8,4'' .''''''
Assign Total +osts:
T-account !or 5or6 in -rocess ,n1entor2:
5or6 in -rocess ,n1entor2
#alance, Aune 1 ' Trans!erred out @,84'
)irect 9aterials 4,'8'
)irect la4or 3,317
Manu!acturing o1eread 1,''7
#alance, Aune 3' 1,7@'
7. Exercise -7-78#, page 283: -repare a production cost report and journal entries
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-lanting )epart9ent Ti9e ?ine:
+on1ersion costs added e1enl2 trougout process

*tart 7'H +o9plete 1''H +o9plete
Direct materials added

2,2'' rac6s co9pleted 2%2$$

-roduct +ost Report:
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+on1ersion costs added e1enl2 trougout process
1,7'' rac6s started 4ut not co9pleted
"ending 0or6 in process in1entor2(
2,2'' rac6s co9pleted
#ransferred 4#
Trans!erred in !ro9 *aping
Trans!erred in !ro9 *aping
P56#7N8 DEP69#MEN#
Product "ost 9eport -part 1 of 2.
Mont Ended Marc 31
Flow of Production
Equivalent nits
Flow of
Ph!sical nits
#ransferred:
in
Direct
Materials
"onversion
"osts
;nits accounted !or:
+o9pleted and trans!erred out during Marc
Ending 0or6 in process, Marc 31
Total p2sical units accounted !or
Total e:ui1alent units
2,2''
1,4''
3,@''
2,2''
1,4''
3,@''
2,2''
'
2,2''
2,2''
8''
P
2,3''
P1,4'' x 7'H E 8''
P56#7N8 DEP69#MEN#
Product "ost 9eport -part 2 of 2.
Mont Ended Marc 31
Flow of "osts
#ransferred:
in
Direct
Materials
"onversion
"osts
#otal
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#eginning 0or6 in process, Marc 1
+osts added during Marc
Total costs to account !or
O Total e:ui1alent units
+ost per e:ui1alent unit
Assignment of total costs:
;nits co9pleted and trans!erred out during Marc
Ending 0or6 in process, Marc 31
Trans!erred-in costs
)irect 9aterials
+on1ersion costs
Total ending 0or6 in process, Marc 31
Total costs accounted !or
C 14,4''
28,8''
C43,2''
O 3,@''
C12
C '
28,@''
C28,@''
O 2,2''
C13
C 11,38'
78,@3'
C@3,@''
O 2,3''
C24
C 2@,38'
117,'3'
C141,4''
Q2,2'' x "C12 I C13 I C24(R1111111111111111
Q1,4'' x C12R111111111111111111111111111
''''''
Q8'' x C24R
C1'8,8''
1@,8''
'
1@,8''
33,@''
C141,4''
Aournal Entries:
Description
De/it "redit
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5or6 in -rocess ,n1entor2--lating
5or6 in -rocess ,n1entor2-*aping
(To record the transfer cost out of the Shaping Department and into the
Planting department)
28,8''

28,8''

Description
De/it "redit
5or6 in -rocess ,n1entor2--lating
Ra0 9aterials in1entor2
Manu!acturing 0ages
Manu!acturing .1eread
(To record the conversion cost to the Planting department)
8@,23'
28,@''
2',8@8
3@,8@3

Description
De/it "redit
<inised =oods ,n1entor2
5or6 in -rocess ,n1entor2--lating
(To record the transfer cost out of the Plating Department and into
Finished Goods Inventory)
1'8,8''

1'8,8''

Essa! ;uestion<"onsiderin0 Ethics:
1. 5rite a 4'' 0ord 9ini9u9 essa2 discussing o0 lean 1ersus traditional production
9igt a!!ect a 9anage9ent accountant tr2ing to calculate a co9pan2Js costs. &o0
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0ould te in!or9ation a 9anage9ent accountant 0ould use to deter9ine co9pan2
costs cange depending on t2pe o! productionS
Te calculation o! co9pan2Js costs 42 te 9anage9ent accountant is a!!ected and
canged 42 te lean or traditional production s2ste9 due to te !ollo0ing reasons
"#raun, Tiet$ % &arrison, 2'1', p.132(:
?ean production s2ste9s a1e lo0 in1entor2 le1els as co9pared to te traditional
production 0ic 9aintains ig in1entor2 and ence te 9anage9ent accountant
as to calculate te costs o! 0or6 in process in1entor2 and ra0 9aterials di!!erentl2
!or eac production s2ste9. &ence te costs cange 0it te t2pe o! production.
Te 4atc si$e o! produced units is s9all 0it s9all setup ti9es in lean production
s2ste9 as co9pared to te traditional production 0ic as long setup ti9es and
large 4atc si$e o! te units produced. Te producti1it2 is increased in a sort ti9e in
lean production. Te 9anage9ent accountantJs calculation o! te cost is a!!ected
and canged 0it t2pe o! production.
)ue to te di!!erent p2sical la2out o! te plant te accountantJs calculation o! cost is
a!!ected and canged 0it te t2pe o! production as te interruptions are less in lean
production as co9pared to te traditional production 0ere li6e 9acines are
grouped togeter. Te ra0 9aterials and te !inised goods need to 4e stored and
andled in traditional production.
,n lean production s2ste9, tere is a lot o! e9pasis on :ualit2 as co9pared to te
traditional production s2ste9s. Te cost o! :ualit2 canges in 4ot te production
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9etods and ence te 9anage9ent accountantJs calculation o! te costs is
a!!ected 0it te t2pe o! production.
Te 9anu!acturing c2cle ti9e is longer in traditional production as co9pared to te
lean production. Tis increases te la4or costs and con1ersion costs and ence te
9anage9ent accountantJs calculation o! te costs is a!!ected 0it te t2pe o!
production.
Te pre1ention, appraisal, internal !ailure and external !ailure costs are di!!erent in
4ot lean and traditional production. &ence te co9pan2Js costs cange and te
calculation 42 te 9anage9ent accountant is a!!ected 0it te t2pe o! production.
,n traditional production s2ste9, te indirect costs are assigned di!!erentl2 as
co9pared to te lean production s2ste9. &ence te co9pan2Js costs cange and
te calculation 42 te 9anage9ent accountant is a!!ected 0it te t2pe o!
production.
,n traditional production, te 9anu!acturing costs are carged in te in1entor2 and
tese costs are not counted as expenses until te unit is sold. &ence te co9pan2Js
costs cange in traditional production as co9pared to lean production and te
calculation 42 te 9anage9ent accountant is a!!ected as te cost canges 0it te
t2pe o! production.
&ence te in!or9ation a 9anage9ent accountant uses to deter9ine co9pan2 costs
canges according to te t2pe o! production.
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Re!erences
#raun, M.5., Tiet$, 5.M., % &arrison, 5.T. "2'1'(. anagerial Accounting! "e!
;pper *addel Ri1er, /e0 Aerse2: -earson -rentice &all.
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