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Exam 1: Management Accounting and Corporate Governance

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Question 71

True/False

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Depreciation on manufacturing equipment is an indirect product cost, while depreciation on office equipment is a period cost.

A) True
B) False

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Question 72

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Howard Lumber Company mistakenly classified a product cost as an expense that totaled $20,000. The company produced 2,000 units of product and sold 1,000 of them during the year. Management is paid a bonus equal to 2% of net income. In the year in which the mistake was made:

A) product costs were overstated.
B) management bonuses were underpaid.
C) the company's income statement portrayed a more favorable position than actually existed.
D) the company's net income was overstated.

E) None of the above
F) B) and C)

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Question 73

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Select the incorrect statement regarding costs and expenses.

What are period costs? How does the accounting for period costs differ from the accounting for product costs?

The Carson Company was started at the beginning of the current year when it acquired $20,000 by issuing common stock to its owners. During the year, the company incurred the following cash costs: The company produced 5,000 units of product and sold 4,500 units. The average selling price was $7.00 per unit. The accountant who prepared the firm's financial statements misclassified the selling and administrative costs as product costs.Required: Demonstrate the impact of the error on the company's financial statements by completing the following schedule. $\begin{array} {| l | r |} \hline\text { Direct material costs } & \$ 10,000 \\\hline \text { Direct labor costs } & 8,000 \\\hline \text { Overhead costs } & 4,000 \\\hline \text { Selling and administrative costs } & 2,000\\\hline\end{array}$ $\begin{array}{|l|l|l|}\hline & \text { Scenario 1: With the error } & \text { Scenario 2: Without the error } \\\hline \text { Income statement: } & & \\\hline \text { Revenue } & & \\\hline \text { Less: Cost of goods sold } & & \\\hline \text { Gross margin } & & \\\hline \begin{array}{c}\text { Less: Selling. general, and } \\\text { administrative expenses }\end{array} & \\\hline \text { Net income } & \\\hline & \\\hline \text { Balance sheet: } & \\\hline \text { Assets } & \\\hline {\text { Cash }} & \\\hline \text { Inventory } & \\\hline \text { Total assets } & \\\hline \text { Equity } & \\\hline \text { Common stock } & \\\hline \text { Retained earnings } & \\\hline \text { Total equity } & \\\hline\end{array}$

Reno Company provided the following information regarding its operations for the month ending September 30: Required: 1) Compute the firm's total manufacturing overhead cost.2) Prepare a schedule of inventory costs that shows total product costs, ending inventory, and cost of goods sold; and $\begin{array} { | l | r | } \hline \text { Administrative costs } & \$ 30,000 \\\hline \text { Depreciation on factory equipment } & 12,000 \\\hline \text { Indirect materials } & 2,000 \\\hline \text { Marketing and distribution costs } & 24,000 \\\hline \text { Salaries for factory supervisors } & 20,000 \\\hline \text { Wages for production workers } & 26,000 \\\hline \text { Raw materials used } & 38,000 \\\hline \text { Sales revenue } & 196,000 \\\hline \text { Selling costs } & 18,000 \\\hline \text { Utilities for production facilities } & 8,000 \\\hline & \\\hline \text { Number of units produced } & 20,000 \\\hline \text { Number of units sold } & 15,000 \\\hline\end{array}$ 3) Prepare an income statement for the month ending September 30.

The Sarbanes-Oxley Act allows, but does not require, a corporation to establish a whistleblower policy.

Managerial accounting information is limited or restricted by which of the following authorities or principles?

Discuss the regulation of financial accounting, and compare to the level of regulation of managerial accounting information.

As a Certified Management Accountant, Steven is bound by the Institute of Management Accountant's Standards of Ethical Conduct. Describe the actions Steven should take when faced with an ethical dilemma at work.

The philosophy of encouraging workers to achieve zero defects and high customer satisfaction is known as total quality management.

What is a value chain? And what relationship is there between the value chain and activity-based management?

Why do accountants normally calculate cost per unit as an average?

What is the effect on the balance sheet of making cash sales of inventory to customers on profit?

Costs such as transportation-out, sales commissions, uncollectible accounts receivable, and advertising costs are sometimes called:

Karen is a Certified Management Accountant and is bound by the IMA's Standards of Ethical Conduct. Her superior has asked her to try to influence the firm's outside auditors with expensive gifts and favors. If Karen complies, she will violate the competence standard.

For a manufacturing company, product costs include all of the following except:

Cash paid to production workers should be recorded as Wages Expense in the income statement for the period incurred.

As a Certified Management Accountant, Derek is bound by the standards of ethical conduct issued by the Institute of Management Accountants. According to the standards, Derek has a responsibility to:

Management accountants have a responsibility to be objective. What does this ethical standard require of management accountants?