Introduction to &

Building Blocks
of Managerial
Accounting
Ch. 1 & 2
Distinguish management accounting
from financial accounting
Users
• Financial Accounting

• Managerial Accounting
 Service Company Income
Statement
• Simplest form of income statement
Routh Pet Grooming is a competitor of Latham Grooming. Routh Pet
Grooming earned $45,000 in revenues for the first quarter of 2007. Using the
following information, prepare an income statement for the first quarter of
2007 and Compute the ratio of operating expenses to total revenue and
operating income to total revenue. Thom Routh, owner, incurred the following
operating expenses to groom 2,000 dogs for
the first quarter of 2007 (January, February,
March):



Wages $ 16,000

Grooming Supplies Expense 4,000

Building rent expense 2,500

Utilities 1,000

Depreciation on Furniture/Equipment 500
journalizing
 Merchandising Company Income
Statement
A merchandising company sells a product (inventory)

REMEMBER: GAAP defines inventory as an asset

until sold, then expensed as Cost of Goods Sold
(matching principle)
TIKI Pro, a retail merchandiser of auto windshields, has the following
information:
Web site maintenance $ 6,900

Delivery expense 800

Freight-in 2,800

Purchases 41,000

Ending Inventory 5,000

Revenues 60,000

Marketing Expenses 10,200

Beginning Inventory 8,200

Compute TIKI's Cost of Goods Sold (CGS):

Junior Dalton opened Dalton's Pets, a small retail shop selling pet supplies.
On December 31, Dalton's accounting records showed the following:

Inventory on December 31 $ 10,700


Prepare an income statement for
 Inventory on January 1 15,300

Dalton's Pets, a merchandiser, for the
 Sales revenue 55,000

year ended December 31. Utilities for shop 3,200

Rent for shop 4,300

Sales commissions 2,850

Purchase of merchandise 25,000
 Manufacturing Company Income
Statement
A manufacturing company makes and sells a product
(3 inventory accounts)

REMEMBER: GAAP defines inventory as an asset

until sold, then expensed as Cost of Goods Sold
(matching principle)
Manufacturing Company
• Uses materials, labor and overhead to produce a
product to sell

• 3 inventory accounts:
 How Do Companies Define
Cost?
• Direct Costs versus Indirect Costs
 The Flow of Costs

Materials Work in Process Finished Goods

You are a new accounting intern at The Warehouse. Your boss gives you the
following information:
Purchase of DM $ 6,700

Freight-in 100

Property taxes 800

Ending inventory of DM 1,600

Beginning inventory of DM 4,200

Compute DM used.
Manufacturing Overhead
• Indirect cost associated with the plant
(manufacturing operation):

• Indirect Materials

• Indirect Labor
Moon Dust company manufactures sunglasses. Suppose the
company's August records include the following items.
Calculate Moon Dust's total manufacturing overhead cost in
August.

Glue for frames $400 Company president's salary $26,000

Depreciation expense
on company cars used 2,000 Plant foreman's salary 3,000
by sales force
Plant depreciation 6,500 Plant janitor's wages 1,100
expense Oil for manufacturing
Interest expense 2,500 150
equipment
Lenses 48,000
Compute cost of goods manufactured (CGM) and cost of
goods sold (CGS) from the following information;

Beginning ofyear End of year

DM Inventory $22,000 $26,000
WIP Inventory 38,000 30,000
FG Inventory 18,000 23,000
DM Purchases 75,000
DL 82,000
OH 39,000
Cougar Lamp Manufacturing provided the following
information for the year ended December 31:
Inventories: Beginning Ending
Materials $50,000 $25,000
Work in process 100,000 65,000
Finished goods 40,000 43,000
other information:
Depreciation: plant
Repairs and
building and $15,000 $5,000
maintenance - plant
equipment
Materials purchases 155,000 Indirect labor 30,000
Insurance on plant 20,000 Direct labor 120,000
Sales salaries Administrative
48,000 52,000
expense expenses

Calculate the CGM and the CGS for Cougar Lamp

Manufacturing (use t-accounts).
Maximum Drive Golf Company had the following inventory data for the year
ended December 31:
DM used $ 15,000

Manufacturing OH 18,000

Work in process:

Beginning 6,000

Ending 3,000

Direct Labor 7,000

Finished goods 11,000


Compute Maximum's CGM (label everything in as much detail as possible).
Chase Toys produces toys for dogs. The following information was available
for the month ended November 30 (assume no beginning or ending raw
materials inventory):
Sales Revenue $ 106,500

DM used 32,000

Prepare an income
 DL 16,000

statement for the month
 OH (includes all indirect costs) 17,000

Beginning WIP 8,000

ended November 30.
Ending WIP 6,000

Operating Expenses 32,000

Finished Goods, Nov. 1 4,000

Finished Goods, Nov. 30 7,200
Considering the following partially completed CGM
statements,
find the missing amounts: Flynt Corp. White Corp. Fit Apparel
Beginning WIP (a) 40,000 2,100
DM used 14,900 35,000 (g)
DL 10,100 20,100 1,100
OH (b) 10,700 900
Total manufacturing costs incurred during the year 45,700 (d) (h)
Total manufacturing costs to account for 56,400 (e) 7,700
Ending WIP (c) 25,700 2,800
CGM 51,900 (f) (i)