Bus.313: Managerial Accounting
Dr. Ahiarah Group No.______
GROUP ASSIGNMENT #1 BASED ON ETO TEXT, Chapter 1 Due Date:_Thurs. Feb. 02, 2017__
If group HW is submitted when due, then it will be graded for the full point value indicated for each part; if submitted after the due date but before the comprehensive exam on the associated chapter, it will be graded for no more than 2 points for the whole of Parts I & II combined. Any group HW submitted after the comprehensive exam.on associated chapter will not be graded. (EACH GROUP MEMBER IS REMINDED TO KEEP A COPY OF THIS FIRST PAGE WITH INSTRUCTOR’S MARK ON IT FOR LATER ATTACHMENT TO THE PORTFOLIO SUMMARY AT THE END OF THE SEMESTER! Thanks)
Using an instrument in the pattern of, or editing, Exhibit 1 below, STATE THE NAME OF EACH OF YOUR GROUP MEMBERS, rate each of your group member's contribution to the performance of the group in this particular homework on a scale of 0 (zero) to 100 percent. You may also rate yourself. Please submit this instrument when the group homework is submitted. (The group should submit only one (group) solution which must include, at least, p.1 (this page), p.5, and the completed form provided at the end)
Exhibit 1
Grp.HW #_ / Contr. % / Contr. % / Contr. % / Contr. %
Note: Highly valued attributes associated with accounting functionaries include: carefulness in listening and reading, attention to minute detail that others might ignore, meticulousness in recording facts (if for no other reason, to avoid being charged with falsification or fraud, which is illegal) and intelligibility based on which some people might infer a certain degree of mastery. These attributes contribute to the unique trust that the certified accounting professionals enjoy. The group HW assignments are part of the design to transmit/impart, or at least, expose you to managerial accounting knowledge/skills or said valued attributes. We are also trying to influence your ‘following a presentation’, ‘reviewing highlighted lesson’, conceptual, comprehension, computational, and problem solving skills and abilities. We would like you to figure out or apply presented managerial accounting models, processes and techniques addressed. You expect the instructor to—and the instructor will, actually—closely review/grade your responses to this assignment. Responses with errors exceeding one (either from inability to get the ball into all the specified “holes,” or from “bogeys”) will not earn full points. Beyond the score, what we can be sure of is that, all design notwithstanding, your take-away from these assignments will be equal to how much or what you put into them—i.e. that you will reap what you sow!
PartI. (4 points max.) GUIDING INSTRUCTIONS: Please supply the missing words for each enumerated blank space by copying verbatim from the narrated “Self-Study Review Problem” for Chapter 1. To facilitate the grading, you must respond to Part I in the separate form provided. Only responses submitted in that form will be graded.
(Note: The publishers may not have adequately updated and synchronized the upper slide visuals and the lower section that tracks the audio. The missing words are, however, from the audio narrative. If the audio narrative as transcribed below (with certain words intentionally omitted in the enumerated blanks inserted by the instructor), does not track the actual audio at the site, please, inform the instructor immediately! Thanks!)
Welcome to Tuscan Manufacturing! This self-study problem introduces you to several cost accounting concepts. It shows (1) ______within a (2) ______system. In addition, it shows the effect of transactions on the required financial statements.
Tuscan Manufacturing Company makes a unique headset for use with mobile phones. During 2003, its first year of operations, Tuscan experienced the following accounting events. Other than the adjusting entries for depreciation, assume that all transactions are cash transactions.
Just a couple of quick reminders here,(3) ______simply a business event that must be recorded in the books. An adjusting entry is an entry that updates account balances prior to preparing financial statements.
Show (4) ______, income statement, and statement of cash flows by recording them in a horizontal financial statements model. The (5)______assists us in understanding a transaction’s effect on the formal financial statements. We will show these effects using positive amounts for increases, and negative amounts for decreases. We will be able to see the effects of transactions on the balance sheet, income statement and the statements of cash flows using this simple tool.
You can easily read a transaction using the horizontal model. For example, the above entry tells me that both cash and owner’s equity increased. I look further, and I see that the increase in retained earnings was due to a revenue that was earned. Another thing, the statement of cash flows tells me this was from operating activities. So, I know that they earned the revenue from what they do in their day-to-day business. Of course, you know that assets equal liabilities plus the owner’s equity, but, to simplify things, this problem eliminates the liability complication. So we’ll just use assets equals equity for this problem. Don’t forget that(6)______.
(Transaction #1): This transaction should be familiar to you from your financial accounting class. The (7) ______from the company’s point-of-view, and(8)______. Don’t forget the rule from financial accounting! When we are finished with an entry, we want to make sure that both sides of the balance sheet are the same! This transaction has no effect on the Income Statement. The owner financed the company, so we do have an increase in cash flows from financing activities. The owner is(9)______to do business with.
(Transaction #2): In this transaction, we are(10)______. We show the decrease in cash by enclosing the number in parentheses. In addition, retained earnings decreases. Research and development costs are incurred prior to manufacturing and are called upstream costs. Upstream costs lower, or decrease, retained earnings because they are expensed. Also notice that when expenses increase, net income decreases, and we have a $50,000 negative cash flow from our operations.
(Transaction #3): This is (11) ______where Tuscan traded the asset cash for the asset materials. The materials are a part of the inventory. The materials will be used to build the product, and are called a product cost. There is no effect on net income for this transaction, but, we do have a negative $140,000 cash flow from operations.
(Transaction #4):(12) ______and become expenses in the period in which they were incurred. Sometimes sales and administrative costs are called period costs for this reason. Retained Earnings decreases because of this expense, which also decreases net income. The statement of cash flows shows an $82,200 decrease due to operating activities. Remember, operating cash flows occur from the day-to-day business of the company.
(Transaction #5): This transaction might surprise you! Since the production of headsets requires people to work on them, the cost of(13)______. The production workers salaries thus become an asset, having no effect on the income statement. Our cash flow for this transaction is a negative for operations purposes. Do note that although we are paying our production workers in cash, we are not able to expense these salaries. We will find out how the production wages, and production costs, do become expenses a little later in the problem.
(Transaction #6): This is an asset exchange transaction where we are (14) ______. The asset cash decreases and the asset, office furniture, increases. There is no effect on the income statement for this transaction. Since we are purchasing an asset that will last greater than one period, the negative, cash flow is from investing activities.
(Transaction #7): The depreciation for the office furniture is calculated the same way we learned in financial accounting for straight-line. We take the cost of the asset and subtract the salvage value, then divide the result by the number of years the asset is expected to be useful to the business. In this case, the result is $10,000. Since the depreciation is related to sales and administrative offices, the depreciation (15) ______, reducing retained earnings. Although we would normally use an accumulated depreciation account to record the depreciation, for illustration purposes, we will show accumulated depreciation as a reduction from the cost of the asset directly. The result that we get is known as book value of the office furniture. Notice that there are no cash flow implications, because cash was not used in this transaction. Notice that there are no cash flow implications, because cash was not used in this transaction. Depreciation is an expense that does not consume cash.
(Transaction #8): This is an asset exchange transaction where we are (16) ______. There is no effect on the income statement for this transaction. Since we are purchasing an asset that will last greater than a year, the negative cash flow is from investing activities. We’ll need to remember in the next transaction that this is equipment used to manufacture the headsets.
(Transaction #9): The depreciation for the manufacturing equipment is calculated the same way we learned in financial accounting for straight-line. Take the cost of the asset and subtract the salvage value, then divide the result by the number of years the asset is expected to be useful to the business. In this case, the result is $20,000. Depreciation is the allocation of the equipment cost over the life of the equipment. Remember that we must recover the cost of the equipment in some manner. This might be another surprise! In financial accounting we used an expense account, depreciation expense. The manufacturing equipment is needed to build the inventory, so the cost of the(17)______and becomes a cost of producing the product. Notice that there are no statement of cash flow effects for this transaction.
(Transaction #10): Surprised again? The rent and utilities are needed to build the inventory, so again this cost is added to the inventory account. Notice that there is no income statement effect. Cash flow is a negative $136,000 from operating activities.
(Transaction #11): Since the products are completed units, the (18) ______. The storage is not required for us to have a finished product, we could use a Just-In-Time manufacturing system and eliminate storage altogether. Notice that expenses increase, reducing net income. We also have a negative cash flow from operating activities.
(Transaction #12): First, we’ll (19) ______. We are recording the sale of 18,400 headsets at $38 per unit. Multiplying the two, we get $699,200 as the total amount of the sale. The sale increases retained earnings, because it is a revenue, which also increases net income. We also have out first positive cash inflow from operating activities. Please notice, that this is the first time that we have received cash, even though we spent cash to build the inventory.
(Transaction #13):In order to have a finished product, we usually need three ingredients: direct material, direct labor and factory overhead. To calculate an average cost perunit, first, we total up everything that we placed in the inventory column. The (20) ______. So, we divide the total cost by the total units to get a (21) ______. If you get confused over which number to divide by which, use the word “per” as a dividing symbol. For example, if I want to calculate cost per unit, I take cost and divide it by units because the word cost appears before the word “per”, and units appears after the word “per”. I simply place a divisor sign where I hear the word “per”, then perform the calculation. This works with anything with the word ‘per” in it…miles per gallon (divide total miles driven by total gallons of gas used); cost per ounce (divide total cost by the total number of ounces in the product).
This transaction records the expense of the inventory that we sold. The expense account is called cost of goods sold. The cost per unit is $26, we sold 18,400 units, we multiply the two, and find our total cost of goods sold are $478,400. When the inventory leaves our building, meaning (22) ______. I like to think of an expense as an asset that leaves the building. Sort of like Elvis. Notice that the sale increases our expenses, reducing our income. There are no cash flow consequences to this transaction. The cash flow for the cost of inventory was accounted for in previous transactions.
Explain why Tuscan’s recognition of cost of goods sold had no impact on cash flow.
The impact on cash flows occurs when Tuscan paid for the various product costs. The cash flow was already recognized before the product was sold. Although the entry to record the depreciation, transaction 9, did not use cash, cash was expended when the manufacturing equipment was purchased.
The multi-step income statement distinguishes between product costs and sales & administrative costs. (23)______. Net income is calculated by subtracting sales and administrative costs from the gross margin.
Distinguish between the product costs and the upstream and downstream costs that Tuscan incurred.
(24) ______consists of three ingredients: (25) ______. The cost of Research and development occurs before product manufacture, is (26)______, and is not an inventory (product) cost. Inventory holding costs occur after the product has been manufactured and is (27) ______and is not an inventory (product) cost.
Selling costs usually occur after the product is produced and is a downstream cost. Administrative costs such as preparing an order or accounting are not related to the production of a finished product. Administrative costs might be upstream or downstream depending on the situation.
The company president believes that Tuscan could save money by buying the inventory that it currently makes. The warehouse supervisor said that would not be possible because the purchase price of $27 per unit was above the $26 average cost per unit of making the product. Assuming that the purchased inventory would be available on demand, explain how the company president could be correct and why the warehouse supervisor could be biased in his assessment of the option to buy the inventory.
Since the merchandise would be available on demand, Tuscan could operate a just-in-time inventory system and eliminate the inventory holding expense. It would cost an additional dollar to purchase the units ($27-$26), times 20,000 units, or an additional $20,000, but Tuscan would save $41,000 in inventory holding expenses. The warehouse person is biased because the warehouse job would be lost if this decision were made. If Tuscan does not have inventory, they do not need a warehouse supervisor.
Thank you for helping us record and analyze Tuscan Manufacturing! In this self-study exercise, you have (28)______within a formal accounting system. You have (29)______. Thanks again, and see you soon!
Part II.(2points max.)The group should go to the CONNECT-PLUS site and collectively complete, grade and discuss Ch1FreePrct Assignment. Print and submit your completed and graded work. Evidence of “graded” required here is the actual SCORE that CONNECT-PLUS reports on each graded work (neither the question’s potential point value, nor a “correct” check mark suffices for “graded”). If your actual score is not printable, clearly indicate, in writing here(below), the name of the group member in whose CONNECT-PLUS account this part was completed ON THE DUE DATE indicated above on page one. If you write somebody’s name here, in place of the printed page(s) requested, the date recorded in the named person’s CONNECT account, will be used to establish whether or not this Part II was submitted by that person on time or after the due date indicated above. As stated on page one above, if submitted after the due datebut before the comprehensive exam on the associated chapter, the whole Group HW will be graded for no morethan 2 points.
______(Name of Group member in whose CONNECT-PLUS account Part II was completed)
NOTE: Unclear, illegible, or unintelligible handwriting on this form will not receive any score! To avoid this problem (losing points for unreadable handwriting), please, type/word-process your responses on this form—the form will expand to accommodate your typing. What would be the point if the handwriting is so bad as to not communicate?
Use this form to complete Part I of GROUP ASSIGNMENT #1BASED ON ETO TEXT, Chapter 1
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