Quick Check Questions

Chapter 2 Building Blocks of Managerial Accounting Copyright © 2015 Pearson Education, Inc. 2-1 Chapter 2

Building Blocks of Managerial Accounting

Quick Check Questions

Answers:

QC2-1. c QC2-3. a QC2-5. c QC2-7. b QC2-9. a QC2-2. b QC2-4. c QC2-6. d QC2-8. c QC2-10. C

Short Exercises

(5 min.) S2-1

Flash Co. is a manufacturer, because it has three kinds of inventory: Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory.

Zippy Co. is a merchandiser, because it has a single inventory account.

Woody Co. is a service company, because it has no inventory.

(10 min.) S2-2

• Service companies typically do not have an inventory account.
• Honda Motors converts raw materials inventory into finished products.
• An insurance company, a health care provider, and a bank are all examples of service companies.
• Wholesalers buy products in build from producers, mark them up, and resell them to retailers.
• Manufacturing companies report three types of inventory on a balance sheet.
• Inventory (merchandise) for a company such as Staples includes all of the costs necessary to purchase

products and get them onto the store shelves.

• Most for-profit organizations can be described as being in one (or more) of three categories: merchandising,

service, and manufacturing.

• Work in process inventory is composed of goods partially through the manufacturing process (not finished

yet).

• Land’s End, Sears Roebuck & Co., and LL Bean are all examples of merchandising companies.

Managerial Accounting 4th Edition Braun Solutions Manual Visit TestBankDeal.com to get complete for all chapters

Managerial Accounting 4e Solutions Manual Copyright © 2015 Pearson Education, Inc. 2-2 (5-10 min.) S2-3

• Marketing
• Design
• Production
• Distribution
• Distribution
• Customer service
• Production
• Production
• Research and Development (R&D)

(5-10 min.) S2-4

Cost Direct or Indirect cost?

• Depreciation of the building Indirect
• Cost of costume jewelry on the mannequins in the Juniors department Direct
• Cost of bags used to package customer purchases at the main registers for the

store Indirect

• The Medina Kohl’s store manager’s salary Indirect
• Cost of security staff at the Medina store Indirect
• Manager of Juniors department Direct
• Juniors department sales clerks Direct
• Cost of Juniors clothing Direct
• Cost of hangers used to display the clothing in the store Indirect
• Electricity for the building Indirect
• Cost of radio advertising for the store Indirect
• Juniors clothing buyers’ salaries (these buyers buy for all Juniors departments of

Kohl’s stores) Indirect

(10 min.) S2-5

• Indirect costs cannot be directly traced to a(n) cost object .
• Total costs include the costs of all resources used throughout the value chain.
• GAAP requires companies to use only inventoriable product costs for external financial reporting.
• Company-paid fringe benefits may include health insurance, retirement plan contributions, payroll taxes, and

paid vacations.

• When manufacturing companies sell their finished products, the costs of those finished products are removed

from inventory and expensed as cost of goods sold.

• Conversion costs are the costs of transforming direct materials into finished goods.
• Period costs include R&D, marketing, distribution, and customer service costs.
• Direct material plus direct labor equals prime costs.
• Steel, tires, engines, upholstery, carpet, and dashboard instruments are used in the assembly of a car. Since

the manufacturer can trace the cost of these materials (including freight-in and import duties) to specific units or batches of vehicles, they are considered direct costs of the vehicles.

• Costs that can be traced directly to a(n) cost object are called direct costs .
• Inventoriable product costs are initially treated as assets on the balance sheet.
• The allocation process results into a less precise cost figure being assigned to the cost objects.

Chapter 2 Building Blocks of Managerial Accounting Copyright © 2015 Pearson Education, Inc. 2-3

Managerial Accounting 4e Solutions Manual Copyright © 2015 Pearson Education, Inc. 2-4 (5-10 min.) S2-6

• Period cost
• Inventoriable product cost
• Period cost
• Inventoriable product cost
• Period cost
• Inventoriable product cost
• Period cost
• Inventoriable product cost
• Inventoriable product cost

(5-10 min.) S2-7

COST Period Cost or Inventoriable Product Cost?If an Inventoriable

Product Cost: Is it

DM, DL, or MOH?

• Standard packaging materials used to package individual

units of product for sale (e.g., cereal boxes in which cereal is packaged) Product DM

• Lease payment on administrative headquarters Period
• Telephone bills relating to customer service call center Period
• Property insurance – 40% of building is used for sales and

administration; 60% of building is used for manufacturing 40% Period; 60% Product — MOH

• Wages and benefits paid to assembly-line workers in the

manufacturing plant Product DL

• Depreciation on automated production equipment Product MOH
• Salaries paid to quality control inspectors in the plant Product MOH
• Repairs and maintenance on factory equipment Product MOH