Muhammad Naeem Sarwar

Managerial Accounting
Module 1
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Exercises:
1. Exercise P1-31A, page 35: E-commerce cost-benefit analysis
!e follo"ing cost-benefit analysis indicates t!at #un $as s!ould proceed "it! t!e
%eb-based ordering system &'raun, iet( ) *arrison, +,1,, p.35-:
______________________________________________________________________
Expected 'enefits:
Expected profits from t!e %eb-based ordering system.. / 1,350,,,,
Expected 1osts:
Purc!asing or upgrading t!e P1s of dealers.............. /05,,,,,
2pgrading computer !ard"are of #un $as........ 15,,,,,
#oft"are cost and consultation fee for installation........ +3,,,,,
otal expected costs..................... &1,13,,,,,-
3et expected benefits................... / ++0,,,,
!erefore, #un $as s!ould proceed "it! t!e %eb-based ordering system because it "ill
lo"er t!e firm4s labor costs and yield a profit of / ++0,,,,.
+. Exercise E+-+1A, page 05: 1lassify and calculate a manufacturer4s costs
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!e costs in t!ousands of dollars are as follo"s &'raun, iet( ) *arrison, +,1,, p.05-:
# 6escription 6M 67 8M 87 9t!er M9* Period
a. Airplane seats /+5,
b.
6epreciation on
administrati:e offices
/5,
c. Assembly "or;ers4 "ages /5,,
d. Plant utilities /1+,
e.
Production super:isors4
salaries and
/1,,
f. <et engines /1,,,,
g. Mac!ine lubricants /15
!. 6epreciation on for;lifts /5,
i.
Property tax on corporate
mar;eting office in
/+5
=. 1ost of "arranty repairs /++5
;. >actory =anitors4 "ages /3,
l.
1ost of designing ne"
plant layout in
/105
m.
Mac!ine operators4 !ealt!
insurance in
/?,
9A7 /1,+5, /5?, /15 /13, /10, /?@5
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal Manufacturing 9:er!ead 1ost:
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8ndirect materials &8M- cost........... / 15,,,,
8ndirect labor &87- cost.............. 13,,,,,
9t!er manufacturing o:er!ead cost ........ 10,,,,,
otal manufacturing o:er!ead cost....... / 315,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal 8n:entoriable Product 1ost:
6irect materials &6M- cost........... / 1,+5,,,,,
6irect labor &67- cost.............. 5?,,,,,
Manufacturing o:er!ead cost .......... 315,,,,
otal in:entoriable product cost....... / +,+,5,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal Prime 1ost:
6irect materials &6M- cost........... / 1,+5,,,,,
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6irect labor &67- cost.............. 5?,,,,,
otal prime cost.............. / 1,@B,,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal 1on:ersion 1ost:
Manufacturing o:er!ead cost.......... / 315,,,,
6irect labor &67- cost.............. 5?,,,,,
otal con:ersion cost............. / B55,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal Period 1ost:
6epreciation on administrati:e offices........ / 5,,,,,
Property tax on corporate mar;eting office......... +5,,,,
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1ost of designing ne" plant layout............. 105,,,,
1ost of "arranty repairs.............. ++5,,,,
otal Period cost..................... / ?@5,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
3. Exercise E+-+5A, page 00: 1ompute cost of goods manufactured and cost of goods
sold.
!e costs for #tri;e Marine 1ompany are &'raun, iet( ) *arrison, +,1,, p.00-:
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
1ost of goods manufactured:
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'eginning "or; in process in:entory....... / 5,,,,,
Add: 'eginning Ca" materials in:entory....... / +5,,,,
Purc!ases of direct materials....... 0@,,,,
A:ailable for use............. 1,3,,,,
Ending ra" materials in:entory........ &+@,,,,-
6irect materials used.............. / 05,,,,
6irect labor................... @+,,,,
Manufacturing 9:er!ead:
8ndirect labor.............. / 15,,,,
8nsurance on plant............ B,,,,
6epreciation-plant building and eDuipment.. 13,,,,
Cepairs and Maintenance-plant....... ?,,,,
Manufacturing 9:er!ead....... ?1,,,,
otal manufacturing cost incurred during t!e year. 1B@,,,,
otal manufacturing costs to account for...... +?@,,,,
7ess: Ending "or; in process in:entory..... &35,,,,-
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1ost of goods manufactured........... / +13,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
1ost of goods sold:
'eginning of finis!ed goods in:entory..... / 1@,,,,
1ost of goods manufactured............. +13,,,,
1ost of goods a:ailable for sale........ +31,,,,
Ending finis!ed goods in:entory........ &+5,,,,-
1ost of goods sold............... / +,5,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
?. Exercise E+-3?', page @,: 1osts along t!e :alue c!ain for manufacturers
6escription C ) 6
6esign
of PEP
Production
Mar;eting 6istribution
1ustomer
#er:ice
6irect
Materials
6irect
7abor
Manufacturing
9:er!ead
#alaries of telep!one
salespeople
/ ?
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6epreciation on plant and
eDuipment
/ 55
Exterior case for p!one / @
#alaries of scientists "!o
de:eloped ne" model
/ 11
6eli:ery expense to
customers :ia 2P#
/ 5
ransmitters / 5@
Cearrange production
process to accommodate ne"
robot
/ 1
Assembly-line "or;ers4
"ages
/ B
ec!nical customer-support
!otline
/ 3
1-@,, &toll-free- line for
customer orders
-
/ +
!e costs in !undreds of t!ousands of dollars are as follo"s &'raun, iet( ) *arrison,
+,1,, p.05-:
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal C)6 cost.............. / 1,1,,,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal 6esign of Products or Processes cost... / 1,,,,,,
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AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal 6irect Materials cost......... / 5,5,,,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal 6irect 7abor cost.......... / B,,,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
.
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal Manufacturing 9:er!ead cost...... / 5,5,,,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal Mar;eting cost.............. / 5,,,,,,
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AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal 6istribution cost............ / 5,,,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal 1ustomer #er:ice cost.......... / 3,,,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal 8n:entoriable Product 1ost:
6irect materials cost.............. / 5,5,,,,,,
6irect labor cost................ B,,,,,,
Manufacturing o:er!ead cost .......... 5,5,,,,,,
otal in:entoriable product cost....... / 13,,,,,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
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AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal Prime 1ost:
6irect materials cost.............. / 5,5,,,,,,
6irect labor cost................ B,,,,,,
otal Prime cost............... / 0,5,,,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
otal 1on:ersion 1ost:
6irect labor cost................ / B,,,,,,
Manufacturing 9:er!ead............. 5,5,,,,,,
otal 1on:ersion cost........... / 5,?,,,,,,
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
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Essay Question/Considering Ethics:
1. Ce:ie" t!e 8MA #tatement of Et!ical Professional Practice. 6oes business
interaction in t!e global mar;et conflict "it! t!ese et!ical standardsF 1onsider
outsourcing, sustainability, and social responsibility. 8s it possible to remain
competiti:e in a global mar;et and remain true to t!ese et!ical standardsF Please
formulate a 3,, "ord minimum essay exploring t!is issue. Cesearc! and site t!e
business practices of at least t"o companies t!at function on at least t"o continents.
!e 8MA4s #tatement of Et!ical Professional Practice reDuires management accountants
to do t!e follo"ing &'raun, iet( ) *arrison, +,1,, p.11-:
Maintain t!eir professional competence G !e management accountants must
perform t!eir professional duties in accordance "it! rele:ant la"s, regulations,
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and tec!nical standards, pro:ide timely and accurate information to support
decision ma;ing, and maintain an appropriate le:el of professional expertise by
continually de:eloping ;no"ledge and s;ills.
Preser:e t!e confidentiality of t!e information t!ey !andle G !e management
accountants must ;eep information confidential from unaut!ori(ed personnel and
refrain from using confidential information for unet!ical or illegal ad:antage. !ey
must also inform all rele:ant parties regarding appropriate use of confidential
information.
2p!old t!eir integrity G !e management accountants must communicate "it!
business associates to a:oid apparent conflicts of interest and abstain from
indulging in any acti:ity t!at mig!t discredit t!e profession. !ey must carry out
t!eir duties et!ically.
Perform t!eir duties "it! credibility G !e management accountants must
disclose all rele:ant information clearly t!at mig!t influence an intended user4s
understanding of t!e reports, analyses, or recommendations. !ey must also
disclose delays or deficiencies in information, timeliness, processing, or internal
controls in conformance "it! t!e organi(ation4s policy.
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2nfortunately, a large percentage of t!e business interactions in t!e global mar;et
conflict "it! t!ese et!ical standards as t!e et!ical be!a:ior is not :ery simple. E:en if a
management accountant "ants to act et!ically, t!e conseDuences can ma;e it difficult
for !im to display et!ical be!a:ior.
>or example, consider t!e follo"ing t!ree t!ings:
9utsourcing G An organi(ation may outsource it business operations to ot!er
countries "!ere it can get c!eap labor and !ence en!ance t!eir o:erall profit.
!ey mig!t not act et!ically "it! t!e labor force and mig!t not be socially
responsible about t!eir needs and feelings.
#ustainability G 8t is t!e ability to meet t!e needs of t!e present "it!out
compromising t!e ability of future generations to meet t!eir o"n needs. An
organi(ations acti:ities and operations mig!t !a:e negati:e impact on t!e eart!4s
resources and !ence mig!t pose a t!reat to future generations.
#ocially responsible G An organi(ation must consider t!e affects of its business
acti:ities on employees, consumers, and local citi(ens. !ey s!ould be careful
not !urt t!e feelings of t!eir employees and consumers, and must "or; for t!e
"elfare of t!e society.
8t is possible to remain competiti:e in a global mar;et by remaining true to t!ese et!ical
standards. #ustainability, social responsibility and outsourcing are :ie"ed by
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organi(ations as opportunities for inno:ation and business de:elopment. !ey lead to
economic profits by increasing demand for organi(ation4s products and ser:ices.
'elo" are examples of practices of social responsibility and sustainability of t"o
companies located on t"o different continents:
a- 6uPont, 2.#.A. G Example of #ustainability: 6uPont, a science-based products
and ser:ices company, !as mo:ed t!roug! t"o p!ases of sustainability in t!e
past 15 years.
>irst, t!e company !as drastically reduced t!e emission of green !ouse
gases, release of carcinogens, and disc!arge of !a(ardous "astes.
#econd, t!e company !as embraced sustainability as a strategic goal :ia
t!e introduction of alternati:e bio-fuels and energy-sa:ing materials suc!
as its ne" bio-P69 fiber.
b- esco, 2.H. G Example of #ocially responsible business model: esco !as
created a I1omputers for #c!oolsJ program. !e customers recei:e :ouc!ers for
e:ery 1, pounds spent, "!ic! t!ey can donate to t!e sc!ool of t!eir c!oiceK t!e
sc!ool exc!anges t!e :ouc!ers for ne" computer eDuipment.
!erefore, it is possible to remain competiti:e in a global mar;et by remaining true to t!e
et!ical standards.
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Memorization Exercise:
1. Ma;ing a song out of terms t!at are ot!er"ise unassociated and boring is one
pro:en "ay to remember :ocabulary. %rite a song incorporating at least ten terms
from Module 9ne. 8t can be as long or as s!ort as you "ant. Ma;e sure t!at it ties
t!e terms you use toget!er and addresses !o" t!ey relate to eac! ot!er. #et it to t!e
melody of a nursery r!yme or a song t!at you en=oy. Lou do not !a:e to perform t!is
and it does not !a:e to be good. #ubmit t!e song t!at you "rote as your assignment
and try singing it to yourself during t!e day.
!e follo"ing song incorporates ten terms describing type of costs from Module 9ne:
Manufacturing companies incur t!ree types of cost
1ost of purc!asing ra" materials called as Direct Materials cost
1ost of employees "!o con:ert ra" materials to finis!ed goods called as Direct Labor cost
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Manufacturing costs ot!er t!an direct materials and direct labor called as Manufacturing
Overhead cost
Manufacturing o:er!ead consists of indirect materials, indirect labor and ot!er manufacturing
cost
1ost of materials used in plant t!at cannot be traced to indi:idual units is called Indirect
Materials cost
1ost of all employees except "!o fall under direct labor is called Indirect Labor cost
9t!er costs related to t!e plant are called Other Manufacturing Overhead cost
1ombination of 6irect materials, direct labor ) manufacturing o:er!ead costs gi:e rise to
Inventoriable Product cost
All costs along t!e :alue c!ain except for t!e production element costs are called Period cost
1ombination of direct materials and direct labor costs is called Prime cost
1ombination of manufacturing o:er!ead and direct labor is called Conversion cost
Ceferences
'raun, H.%., iet(, %.M., ) *arrison, %.. &+,1,-. Managerial Accounting. 2e. 2pper
#addel Ci:er, 3e" <ersey: Pearson Prentice *all.
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