Chapter 14: Q16DQ (page 655)
Why does a manufacturing company require three different inventory categories?
Since manufacturers calculate their costs differently, their inventories are divided into categories.
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Question: Shown here are annual financial data at December 31, 2017, taken from two different companies.
TeeMart (Retail) | Aim Labs (Manufacturing) | |
Beginning inventory | ||
Merchandise | \(100,000 | |
Finished goods | \)300,000 | |
Cost of purchases | 250,000 | |
Cost of goods manufactured | 586,000 | |
Ending inventory | ||
Merchandise | 150,000 | |
Finished goods | 200,000 |
Required
1. Compute the cost of goods sold section of the income statement at December 31, 2017, for each company. Include the proper title and format in the solution.
2. Write a half-page memorandum to your instructor (a) identifying the inventory accounts and (b) identifying where each is reported on the income statement and balance sheet for both companies.
Should we evaluate a production manager’s performance on the basis of operating expenses? Why?
Question: Racer’s Edge makes specialty skates for the ice skating circuit. On December 31, 2016, the company had (a) 1,500 skates in finished goods inventory and (b) 2,500 blades at a cost of \(20 each in raw material inventory, During 2017, Racer’s Edge purchased 45,000 additional blades at \)20 each and manufactured 20,750 pairs of skates.
Required
Analysis component
Write a half-page memorandum to the production manager explaining why a just-in-time inventory system for blades should be considered. Include the amount of working capital that can be reduced at December 31, 2017, if the ending blade raw material is cut in half.
Match each concept with its best description by entering its letter A through E in the blank.
1. Just-in-time manufacturing | A. Focuses on quality throughout the production process. |
2. Continuous improvement | B. Flexible product design can be modified to accommodate customer choices. |
3. Customer orientation | C. Every manager and employee constantly looks for ways to improve company operations |
4. Total quality management | D. Reports on financial, social, and environmental performance. |
5. Triple bottom line | E. Inventory is acquired or produced only as needed. |
Why does managerial accounting often involve working with numerous predictions and estimates?
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