SEU Accounting The Purpose of Cost Accounting Systems Discussion

Job Order Costing
Discussion Question
Q1- Consider a service or manufacturing business that could or should use job order costing systems.
How would it be used and what benefits could it provide to the organization? Which account is used in
the job order cost system to accumulate production costs for individual jobs? Please be specific in
your discussion.
Directions:
•
•
Discuss the concepts, principles, and theories from your textbook. Cite your textbooks and
cite any other sources if appropriate.
Your initial post should address all components of the question with a 500 word limit.
Readings
Required:
• Chapter 2 JOB ORDER COSTING in Managerial Accounting
• Visedsun, N. Terdpaopong, K. (2021). The effects of the strategy and goal on business
performance as mediated by management accounting systems. Economies, 9(4), 149-149.
Recommended:
• Module 02 PowerPoint Presentation
• Armitage, H. Lane, D., & Webb, A. (2020). Budget development and use in small- and
medium-sized enterprises: A field investigation. Accounting perspectives. 19(3), 205-240.
Important:
Please note that it is important to include sufficient references in the work and ensure zero
plagiarism.
Chapter 2
Job Order
Costing
Learning Objectives
• Obj. 1: Describe cost accounting systems used
by manufacturing businesses.
• Obj. 2: Describe and illustrate a job order cost
accounting system for a manufacturing business.
• Obj. 3: Describe job order cost accounting
systems for service businesses.
• Obj. 4: Describe the use of job order cost
information for decision making.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Cost Accounting Systems Overview
(slide 1 of 4)
Measure, record, and
report product costs
Cost
accounting
systems
Job order cost
systems
Process cost
systems
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Cost Accounting Systems Overview
(slide 2 of 4)
Uses of product
costs
Setting product
prices
Controlling
operations
Developing
financial
statements
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Cost Accounting Systems Overview
(slide 3 of 4)
• A job order cost system provides product costs
for each quantity of product that is manufactured.
o Each quantity of product that is manufactured is called
a job.
• Job order cost systems are often used by
companies that manufacture custom products for
customers or batches of similar products.
o Manufacturers that use a job order cost system are
sometimes called job shops.
▪ Examples of job shops:
– Apparel manufacturer
– Guitar manufacturer
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Cost Accounting Systems Overview
(slide 4 of 4)
• A process cost system provides product costs
for each manufacturing department or process.
• Process cost systems are often used by
companies that manufacture units of a product
that are indistinguishable from each other and
are manufactured using a continuous
production process.
o Examples: oil refineries, paper producers, chemical
processers, food processors
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Summary of Legend Guitars’ Manufacturing
Operations
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Job Order Cost Systems for Manufacturing
Businesses (slide 1 of 2)
• A job order cost system records and summarizes
manufacturing costs by jobs.
o While jobs are still in the production process, they are
part of Work in Process Inventory.
o When jobs are completed, they become part of
Finished Goods Inventory.
o When the finished goods are sold to customers, their
costs become part of Cost of Goods Sold.
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Flow of Manufacturing Costs
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Job Order Cost Systems for Manufacturing
Businesses (slide 2 of 2)
• In a job order cost accounting system, perpetual
inventory controlling accounts and subsidiary
ledgers are maintained for materials, work in
process, and finished goods inventories.
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Inventory Ledger Accounts
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Materials
(slide 1 of 6)
• The materials account in the general ledger is a
controlling account. A separate account for each
type of material is maintained in a subsidiary
materials ledger.
Materials ledger account
Increases (debits) are
based on receiving reports,
which is supported by the
supplier’s invoice
Decreases (credits) are
based on materials
requisitions
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Materials Information and Cost Flows
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Materials
(slide 2 of 6)
• A receiving report is prepared when materials
that have been ordered are received and
inspected.
• The quantity received and the condition of the
materials are entered on the receiving report.
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Materials
(slide 3 of 6)
• When the supplier’s invoice is received, it is
compared to the receiving report.
• If there are no discrepancies, a journal entry is
made to record the purchase.
o The journal entry to record the supplier’s invoice
related to Receiving Report No. 196 (see Slide 12) is
as follows:
Materials
Accounts payable
10,500
10,500
Materials purchased during December
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Materials
(slide 4 of 6)
• The storeroom releases materials for use in
manufacturing when a materials requisition is
received.
• The materials requisitions for each job serve as
the basis for recording materials used.
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Materials
(slide 5 of 6)
• For direct materials, the quantities and amounts
from the materials requisitions are posted to job
cost sheets.
o Job cost sheets make up the work in process
subsidiary ledger.
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Materials
(slide 6 of 6)
• A summary of the materials requisitions is used
as a basis for the journal entry recording the
materials used for the month.
o For direct materials, this entry increases (debits) Work
in Process and decreases (credits) Materials.
▪ The journal entry to record the direct materials used for the
month for Legend Guitars (see Slide 12) is as follows:
Work in process
Materials
13,000
13,000
Materials requisitioned to jobs
($2,000 ÷ $11,000)
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Factory Labor
(slide 1 of 2)
• When employees report for work, they may use
electronic badges, clock cards, or in-and-out
cards to clock in.
• When employees work on an individual job,
they use time tickets to record the amount of
time they have worked on a specific job.
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Labor Information and Cost Flows
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Factory Labor
(slide 2 of 2)
• A summary of the time tickets is used as the
basis for the journal entry recording direct labor
for the month.
o This entry increases (debits) Work in Process and
increases (credits) Wages Payable.
▪ The journal entry to record direct labor for the month for
Legend Guitars (see Slide 20) is as follows:
Work in process
Wages payable
11,000
11,000
Factory labor used in production of
jobs ($3,500 ÷ $7,500)
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Factory Overhead
(slide 1 of 2)
• Factory overhead includes all manufacturing
costs except direct materials and direct labor.
• Factory overhead costs come from a variety of
sources, including the following:
o Indirect materials come from a summary of materials
requisitions.
o Indirect labor comes from the salaries of production
supervisors and the wages of other employees such
as janitors.
o Factory power comes from utility bills.
o Factory depreciation comes from Accounting
Department computations of depreciation.
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Factory Overhead
(slide 2 of 2)
• Assume that Legend Guitars incurred $4,600 of
overhead during December, which included $500 of
indirect materials, $2,000 of indirect labor, $900 of
utilities, and $1,200 of factory depreciation. The $500 of
indirect materials consisted of $200 of glue and $300 of
sandpaper. The entry to record the factory overhead is
as follows:
Factory overhead
Materials
4,600
500
Wages payable
2,000
Utilities payable
900
Accumulated depreciation
1,200
Factory overhead incurred in production
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Check Up Corner
Direct Materials, Direct Labor, and
Factory Overhead Costs
• Grayson Company is a manufacturer that uses a job order cost system.
The following data summarize the operations related to production for
January, the first month of operations:
a.
b.
Purchased 400 units of materials at $14 per unit on account.
Requisitioned materials for production as follows:
▪ 200 units for Job 101 at $12 per unit.
▪ 300 units for Job 102 at $14 per unit.
c.
Accumulated direct labor cost as follows:
▪ 700 hours of direct labor on Job 101 at $16 per hour.
▪ 600 hours of direct labor on Job 102 at $12 per hour.
d.
Incurred factory overhead costs as follows: indirect materials, $800; indirect
labor, $3,400; utilities cost, $1,600; and factory depreciation, $2,500.
• Journalize the entries to record these transactions.
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Check Up Corner
a.
Purchase of materials
Materials
5,600
Accounts payable
b.
400 units × $14 per unit
5,600
Requisition of materials
Work in process
6,600
Materials
c.
Direct Materials, Direct Labor, and
Factory Overhead Costs Solution
Work in process
6,600
18,400
Wages payable
d. Factory overhead
Materials
18,400
Qty.
Price
Total cost
Job 101
200 ×
$12 =
$2,400
Job 102
300 ×
$14 =
$4,200
Total
$6,600
Direct labor cost
8,300
Hours
800
Rate
Total cost
Wages payable
3,400
Job 101
700 ×
$16 =
$11,200
Utilities payable
1,600
Job 102
600 ×
$12 =
$7,200
Accumulated
depreciation—factory
2,500
Total
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$18,400
Allocating Factory Overhead
(slide 1 of 2)
• Factory overhead is different from direct labor
and direct materials in that it is indirectly
related to the jobs. That is, factory overhead
costs cannot be identified with or traced to
specific jobs. For this reason, factory
overhead costs are allocated to jobs.
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Allocating Factory Overhead
(slide 2 of 2)
• The process by which factory overhead or
other costs are assigned to a cost object, such
as a job, is called cost allocation.
o The factory overhead costs are allocated to jobs
using a common measure related to each job.
▪ This measure is called an activity base, allocation base,
or activity driver.
– Three common activity bases used to allocate factory
overhead costs are as follows:
1. Direct labor hours
2. Direct labor cost
3. Machine hours
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Predetermined Factory Overhead Rate
(slide 1 of 3)
• Factory overhead costs are normally allocated
or applied to jobs using a predetermined
factory overhead rate.
• The predetermined factory overhead rate is
computed as follows:
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Predetermined Factory Overhead Rate
(slide 2 of 3)
• Assume that Legend Guitars estimates the total
factory overhead cost as $50,000 for the year
and the activity base as 10,000 direct labor
hours. The predetermined factory overhead rate
is computed as follows:
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Predetermined Factory Overhead Rate
(slide 3 of 3)
Activity-based
costing
Method for
accumulating and
allocating factory
overhead costs
Uses a different
overhead rate for
each type of factory
overhead activity
Inspecting, moving,
and machining
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Applying Factory Overhead to Jobs
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Applying Factory Overhead to Work in Process
(slide 1 of 5)
• Using a factory overhead rate of $5 per direct
labor hour, $4,250 of factory overhead is applied
as follows:
Time tickets
Direct labor
hours
Factory overhead
rate
Factory overhead
applied
Job 71
350
$5
$1,750 (350 hrs. × $5)
Job 72
500
$5
$2,500 (500 hrs. × $5)
Total
850
$4,250
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Applying Factory Overhead to Work In Process
(slide 2 of 5)
• The journal entry to apply factory overhead
increases (debits) Work in Process and
decreases (credits) Factory Overhead.
o The journal entry to apply overhead to Jobs 71 and
72 is as follows:
Work in process
Factory overhead
4,250
4,250
Factory overhead applied to jobs
according to the predetermined overhead
rate (850 hrs. × $5)
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Applying Factory Overhead to Work in Process
(slide 3 of 5)
• The factory overhead account is:
o Increased (debited) for the actual overhead costs
incurred.
o Decreased (credited) for the applied overhead.
• The actual and applied overhead usually differ
because the actual overhead costs are normally
different from the estimated overhead costs.
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Applying Factory Overhead to Work in Process
(slide 4 of 5)
• Depending on whether actual overhead is greater or less
than applied overhead, the factory overhead account will
either have a debit or credit ending balance as follows:
o
If the applied overhead is less than the actual overhead incurred,
the factory overhead account will have a debit balance.
▪ This debit balance is called underapplied factory overhead or
underabsorbed factory overhead.
o
If the applied overhead is more than the actual overhead
incurred, the factory overhead account will have a credit balance.
▪ This debit balance is called overapplied factory overhead or
overabsorbed factory overhead.
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Applying Factory Overhead to Work in Process
(slide 5 of 5)
• The factory overhead account for Legend Guitars, which
follows, illustrates both underapplied and overapplied
factory overhead.
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Check Up Corner
•
Applying Overhead and Determining Job
Cost
Grayson Company estimates that total factory overhead costs will be $100,000 for
the year. Direct labor hours are estimated as 25,000 for the year. The company
has two completed jobs at the end of January, Jobs 101 and 102. The direct labor
hours and units produced for these jobs are as follows:
a.
Direct labor hours
Units produced
Job 101
700
500
Job 102
600
1,000
Using the information provided, determine:
▪ The predetermined factory overhead rate using direct labor hours as the activity
base.
▪ The amount of factory overhead applied to Jobs 101 and 102 in January.
b.
c.
Prepare the journal entry to apply factory overhead to both jobs in January
using the predetermined overhead rate from (a).
Using the information provided along with the job cost information from
Check Up Corner 16-1, determine:
▪ The balance on the job cost sheets for Jobs 101 and 102 at the end of the month.
▪ The cost per unit for Jobs 101 and 102.
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Check Up Corner
Applying Overhead and
Determining Job Cost Solution (slide 1 of 2)
a. 1
2
Direct
labor
hours
Factory
overhead
rate
Factory
overhead
applied
Job 101
700 ×
$4
=
$2,800
Job 102
600 ×
$4
=
$2,400
Total
b.
$5,200
Work in process
Factory overhead
A predetermined
overhead rate is used to
apply overhead costs to
individual jobs.
The factory overhead cost
applied to each job is
recorded on the job cost
sheet for each job.
5,200
5,200
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Check Up Corner
Applying Overhead and
Determining Job Cost Solution (slide 2 of 2)
The factory overhead costs
applied are from Slide 38.
Job 101
Job 102
Direct materials
$2,400
$4,200
Direct labor
$11,200
$7,200
Factory overhead
$2,800
$2,400
Total costs
$16,400
$13,800
Cost per unit
$32.80
$13.80
$16,400 ÷ 500 units
$13,800 ÷ 1,000 units
The direct materials cost and
direct labor cost for each job
were determined in Check
Up Corner 16-1.
The total costs of each job
are accumulated on the job
cost sheet.
The total cost is divided by
the number of units to
determine the cost per unit.
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Disposal of Factory Overhead Balance
(slide 1 of 3)
• During the year, the balance in the factory
overhead account is carried forward and
reported as a deferred debit or credit on the
monthly (interim) balance sheets.
• However, any balance in the factory overhead
account should not be carried over to the next
year.
o This is because any such balance applies only to
operations of the current year.
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Disposal of Factory Overhead Balance
(slide 2 of 3)
• The balance of Factory Overhead at the end of the year is disposed
of by transferring it to the cost of goods sold account as follows:
o If there is an ending debit balance (underapplied overhead) in the factory
overhead account, it is disposed of by the entry that follows:
Cost of goods sold
XXX
Factory overhead
XXX
Transfer of underapplied overhead of cost
of goods sold
o If there is an ending credit balance (overapplied overhead) in the factory
overhead account, it is disposed of by the entry that follows:
Factory overhead
Cost of goods sold
XXX
XXX
Transfer of overapplied overhead of cost of
goods sold
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Disposal of Factory Overhead Balance
(slide 3 of 3)
• The journal entry to dispose of Legend Guitars’ December 31, 2018,
underapplied overhead balance of $150 is as follows:
Cost of goods sold
Factory overhead
150
150
Closed underapplied factory overhead to
cost of goods sold
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Work in Process
(slide 1 of 3)
Direct materials cost
Increased Work in Process
Direct labor cost
Applied factory overhead cost
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Job Cost Sheets and the Work
in Process Controlling Account
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Work in Process
(slide 2 of 3)
• During December, Job 71 was completed. Upon
completion, the product costs (direct materials, direct
labor, and factory overhead) are totaled. This total is
divided by the number of units produced to determine the
cost per unit.
o
Thus, the 20 Jazz Series guitars produced as Job 71 cost
$512.50 ($10,250 ÷ 20) per guitar.
• After completion, Job 71 is transferred from Work in
Process to Finished Goods by the following entry:
Finished goods
Work in process
10,250
10,250
Job 71 completed in December
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Work in Process
(slide 3 of 3)
• Job 72 was started in December but was not
completed by December 31, 2018. Thus, Job 72
is still part of work in process on December 31,
2018.
o Note that the balance of the job cost sheet for Job 72
($21,000) is also the December 31, 2018, balance of
Work in Process.
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Finished Goods
• The finished goods account is a controlling
account for the subsidiary finished goods
ledger or stock ledger.
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Finished Goods Ledger Account
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Sales and Cost of Goods Sold
• During December, Legend Guitars sold 40 Jazz
Series guitars for $850 each, generating total sales
of $34,000 ($850 × 40 guitars). The cost per guitar
sold was $500 or a total cost of $20,000 ($500 ×
40). The entries to record the sale and related cost
of goods sold are as follows:
Accounts receivable
34,000
Sales
34,000
Revenues received from guitars sold on
account
Costs of goods sold
Finished goods
20,000
20,000
Cost of 40 Jazz Series guitars sold
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Period Costs
(slide 1 of 2)
Used in generating
revenue during the
current period
Period costs
Not involved in the
manufacturing
process
Selling
expenses
Recorded as
expenses of the
current period
Administrative
expenses
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Period Costs
(slide 2 of 2)
• Selling expenses are incurred in marketing and
delivering the sold product to customers.
• Administrative expenses are incurred in
managing the company, but are not related to
the manufacturing or selling functions.
• During December Legend Guitars recorded the
following selling and administrative expenses:
Sales salaries expense
2,000
Office salaries expense
1,500
Salaries payable
3,500
Recorded December period costs
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Flow of Manufacturing Costs for Legend
Guitars
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Summary of Cost Flows for Legend Guitars
• Slide 52 shows the cost flows through the
manufacturing accounts of Legend Guitars for
December.
o The balances of Materials, Work in Process, and
Finished Goods are supported by their subsidiary
ledgers.
Controlling account
Balance and total of
related subsidiary ledger
($)
Materials
3,500
Work in process
21,000
Finished goods
10,250
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Income Statement of Legend Guitars
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Job Order Cost Systems for Service Businesses
(slide 1 of 2)
• A job order cost accounting system may be used
by a professional service business.
o For example, an advertising agency, an attorney, and
a physician each provide services to individual
customers, clients, or patients. In such cases, the
customer, client, or patient can be viewed as a job for
which costs are accumulated.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Job Order Cost Systems for Service Businesses
(slide 2 of 2)
• The primary product costs for a service business are direct labor and
overhead costs. Any materials or supplies are insignificant and are
included as part of overhead costs.
• Like a manufacturing business, direct labor and overhead costs of
rendering services to clients are accumulated in a work in process
account.
• When the job is completed and the client is billed, the costs are
transferred to a cost of services account.
o Cost of Services is similar to the cost of merchandise sold account for a
merchandising business or the cost of goods sold account for a
manufacturing business.
• A finished goods account and related finished goods ledger are not
necessary.
o This is because the revenues for the services are recorded only after the
services are provided.
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Flow of Costs through a Service Business
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Check Up Corner
•
Job Order Costing for a Service Business
The Mad-Fly Agency provides consulting services to a variety of clients across the
country. The agency accumulates costs for each consulting project on the basis of
direct labor costs and allocated overhead costs. Mad-Fly’s estimated direct labor
and overhead costs for the year are as follows:
Direct labor hours (professional staff)
Hourly rate for professional staff
Estimated total overhead costs
•
20,000 hours
$180 per hour
$1,200,000
Mad-Fly allocates overhead costs to individual jobs based on the total estimated
direct labor hours of its professional services staff.
a. Determine Mad-Fly’s estimated predetermined overhead rate for the year.
b. Mad-Fly started and completed a consulting job for MT Industries during the
year (Job 402). The job required 200 direct labor hours of professional staff.
Determine the cost of the MT Industries job (Job 402).
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Check Up Corner
Applying Overhead and
Determining Job Cost
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Job Order Costing for Decision Making
(slide 1 of 2)
• A job order cost accounting system accumulates
and records product costs by jobs. The resulting
total and unit product costs can be compared to
similar jobs, compared over time, or compared to
expected costs.
o In this way, a job order cost system can be used by
managers for cost evaluation and control.
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Comparing Data from Job Cost Sheets
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Job Order Costing for Decision Making
(slide 2 of 2)
• The job cost sheets can be analyzed for
possible reasons for the increased materials
cost for Job 63.
• Because the materials price did not change
($10 per board foot), the increased materials
cost must be related to the wood used.
• Thus, Legend Guitars should conduct an
investigation to determine the cause of the
extra 100 board feet used for Job 63.
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Chapter 3
Process Cost
Systems
Learning Objectives
(slide 1 of 2)
• Obj. 1: Describe process cost systems.
• Obj. 2: Prepare a cost of production report.
• Obj. 3: Journalize entries for transactions using a
process cost system.
• Obj. 4: Describe and illustrate the analysis of unit cost
changes between periods.
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Learning Objectives
(slide 2 of 2)
• Obj. 5: Describe and illustrate the use of a cost of
production report in evaluating a company’s
performance.
• Obj App: Describe and illustrate the weighted
average method of preparing a cost of production
report.
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Accounting for Process Manufacturers
(slide 1 of 2)
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Accounting for Process Manufacturers
(slide 2 of 2)
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Examples of Process Cost and Job Order
Companies
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Process Cost System and Job Order Cost
System – Similarities
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Process Cost and Job Order Cost Systems
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Comparing Job Order and
Process Cost Systems
• Process and job order cost systems are different in
several ways.
o A process cost system accumulates (records) product
costs in work in process accounts for each department.
In contrast, a job order cost system accumulates
(records) product costs by jobs, using job cost sheets.
o In a job order cost system, the work in process at the
end of the period is the sum of the job cost sheets for
partially completed jobs. In a process cost system, the
work in process at the end of the period is the sum of
the costs remaining in each department account at the
end of the period.
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Physical Flows for a Process Manufacturer
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Cost Flows for a Process Manufacturer—
Frozen Delight
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Cost of Production Report
(slide 1 of 4)
• In a process cost system, the cost of units transferred
out of each processing department must be
determined along with the cost of any partially
completed units remaining in the department. The
report that summarizes these costs is a cost of
production report.
o The cost of production report summarizes the
production and cost data for a department as follows:
▪ The units the department is accountable for and the
disposition of those units.
▪ The product costs incurred by the department and the
allocation of those costs between completed (transferred
out) and partially completed units.
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Preparing a Cost of Production Report
Determine
units to be
assigned costs
Compute
equivalent
units of
production
Determine cost
per equivalent
unit
Allocate costs
to units
transferred out
and to partially
completed
units
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Cost of Production Report
(slide 2 of 4)
• Preparing a cost of production report requires making
a cost flow assumption.
• Like merchandise inventory, costs can be assumed
to flow through the manufacturing process using the
first-in, first-out (F I F O), last-in, first-out (L I F O), or
average cost methods.
o Because the first-in, first-out (F I F O) method is often
the same as the physical flow of units, the FIFO
method is used in this chapter.
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Cost of Production Report
(slide 3 of 4)
• A cost of production report for the Mixing Department of
Frozen Delight for July is prepared.
Specifics
Amount ($)
Inventory in process, July 1, 5,000 gallons:
Direct materials cost, for 5,000 gallons
5,000
Conversion costs, for 5,000 gallons, 70% completed
1,225
Total inventory process, July 1
6,225
Direct materials cost for July, 60,000 gallons
66,000
Direct labor cost for July
10,000
Factory overhead applied for July
7,275
Total production cost to account for
90,000
Gallons transferred to Packaging in July (includes units in process on July 1),
62,000 gallons
?
Inventory in process, July 31, 3,000 gallons, 25% conversion costs
?
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Cost of Production Report
(slide 4 of 4)
• By preparing a cost of production report, the cost of
the gallons transferred to the Packaging Department
in July and the ending work in process inventory in
the Mixing Department are determined.
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Step 1: Determine the Units to Be Assigned
Costs (slide 1 of 4)
• The first step is to determine the units to be
assigned costs.
o A unit can be any measure of completed production,
such as tons, gallons, pounds, barrels, or cases.
▪ For Frozen Delight, a unit is a gallon of ice cream.
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Step 1: Determine the Units to Be Assigned
Costs (slide 2 of 4)
• The Mixing Department is accountable for
65,000 gallons of direct materials during July,
computed as follows:
Total Units (Gallons) Charged to
Production
Quantity in Gallons
In process, July 1
5,000
Received from materials storage
60,000
Total units accounted for
65,000
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Step 1: Determine the Units to Be Assigned
Costs (slide 3 of 4)
• For July, the following three groups of units (gallons)
are assigned costs:
o Group 1: Units (gallons) in beginning work in process
inventory on July 1.
o Group 2: Units (gallons) started and completed during
July.
o Group 3: Units (gallons) in ending work in process
inventory on July 31.
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July Units to Be Costed—Mixing Department
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Step 1: Determine the Units to Be Assigned
Costs (slide 4 of 4)
• The total units (gallons) to be assigned costs for
July are summarized as follows:
Group
Particulars
Quantity in
Gallons
Group 1 Inventory in process, July 1, completed in July
5,000
Group 2 Started and completed in July
57,000
Transferred out to the Packaging
Department in July
Group 3 Inventory in process, July 31
Total units (gallons) to be assigned costs
62,000
3,000
65,000
The total gallons to be assigned costs equal the total gallons accounted for
by the Mixing Department.
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Step 2: Compute Equivalent Units of
Production (slide 1 of 5)
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Step 2: Compute Equivalent Units of
Production (slide 2 of 5)
• Assume that a 1,000-gallon batch (vat) of ice cream
at Frozen Delight is only 40% complete in the mixing
process on May 31.
o Thus, the batch is only 40% complete as to
conversion costs such as power.
▪ In this case, the whole units and equivalent units of
production are as follows:
Type of Cost
Whole Units in
Gallons
Material Costs
1,000
Conversion Costs
1,000
Equivalent Units in
Gallons
1,000
400 gallons (1000 × 40%)
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Step 2: Compute Equivalent Units of
Production (slide 3 of 5)
• Equivalent units for materials and conversion
costs are usually determined separately.
o This is because materials and conversion costs
normally enter production at different times and rates.
▪ In contrast, direct labor and factory overhead normally enter
production at the same time and rate.
▪ For this reason, direct labor and factory overhead are
combined as conversion costs in computing equivalent units.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Step 2: Compute Equivalent Units of
Production (slide 4 of 5)
• To compute equivalent units for materials, it is
necessary to know how materials are added during
the manufacturing process.
o In the case of Frozen Delight, all the materials are
added at the beginning of the mixing process.
Group
Specifics
Whole Units
Group 1
Inventory in process, July 1
5,000
Group 2
Started and completed in July
(62,000 − 5,000)
57,000
Group 3
Transferred out to Packaging
Department in July
62,000
Inventory in process, July 31
3,000
Total gallons to be assigned costs
65,000
Percent Materials
Added in July
Units for Direct
Materials
0%
0
100%
57,000
57,000
100%
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3,000
60,000
Direct Materials Equivalent Units
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Step 2: Compute Equivalent Units of
Production (slide 5 of 5)
• To compute equivalent units for conversion costs, it is
necessary to know how direct labor and factory overhead
enter the manufacturing process.
o
Direct labor, utilities, and equipment depreciation are often incurred
uniformly during processing. Hence, it is assumed that Frozen Delight
incurs conversion costs evenly throughout its manufacturing process.
Group
Specifics
Whole
Units
Percent Conversion
Completed in July
Equivalent Units
for Conversion
Group 1
Inventory in process, July 1 (70%
completed)
5,000
30%
1,500
Group 2
Started and completed in July (62,000
− 5,000)
57,000
100%
57,000
Transferred out to Packaging
Department in July
62,000
Inventory in process, July 31 (25%
completed)
3,000
Total gallons to be assigned costs
65,000
Group 3
58,500
25%
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750
59,250
Conversion Equivalent Units
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Check Up Corner 17-1
•
Equivalent Exits
The Bottling Department of Rocky Springs Beverage Company had 2,000
liters in the beginning work in process (30% complete). During the month,
28,500 liters were started and 29,000 liters were completed. The ending
work in process inventory was 1,500 liters (60% complete). Materials are
added at the beginning of the process, while conversion costs are added
evenly throughout the process.
a. How many units were started and completed during the month?
b. What are the total equivalent units for:
1.
2.
Direct materials
Conversion costs
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Check Up Corner 17-1
Equivalent Exits
Solution (slide 1 of 3)
a. The units started and completed can be computed as follows:
Alternative One
Units
Alternative Two
Units
Completed (transferred out)
29,000
Started (during month)
28,500
Inventory in process
(beginning)
(2,000)
Inventory in process
(beginning)
(1,500)
Started and completed
27,000
Started and completed
27,000
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Check Up Corner 17-1
Equivalent Exits
Solution (slide 2 of 3)
b.
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Check Up Corner 17-1
Equivalent Exits
Solution (slide 3 of 3)
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Step 3: Determine the Cost per Equivalent Unit
(slide 1 of 4)
• The cost per equivalent unit for direct materials
and conversion costs is computed as follows:
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Step 3: Determine the Cost per Equivalent Unit
(slide 2 of 4)
• The July direct materials and conversion cost
equivalent units for Frozen Delight’s Mixing
Department from Step 2 are as follows:
Equivalent Units
Direct
Materials
Group
Specifics
Group 1
Inventory in process, July 1
0
1,500
Group 2
Started and completed in July
(62,000 − 5,000)
57,000
57,000
Transferred out to Packaging
Department in July
57,000
58,500
Inventory in process, July 31
3000
750
Total gallons to be assigned costs
60,000
59,250
Group 3
Conversion
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Step 3: Determine the Cost per Equivalent Unit
(slide 3 of 4)
• The direct materials and conversion costs
incurred by Frozen Delight in July are as follows:
Direct Materials
$66,000
Conversion costs
Direct labor
$10,500
Factory overhead
$7,275
Total product costs incurred in July
$17,775
$83,775
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Step 3: Determine the Cost per Equivalent Unit
(slide 4 of 4)
• The direct materials and conversion costs per
equivalent unit are computed as follows:
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Step 4: Allocate Costs to Units Transferred
Out and Partially Completed Units (slide 1 of 8)
• Product costs must be allocated to the units
transferred out and the partially completed units on
hand at the end of the period.
o The product costs are allocated using the costs per
equivalent unit for materials and conversion costs that
were computed in Step 3.
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Step 4: Allocate Costs to Units Transferred
Out and Partially Completed Units (slide 2 of 8)
• The total production costs to be assigned for
Frozen Delight in July are $90,000, computed as
follows:
Specifics
Cost ($)
Inventory in process, July 1, 5,000 gallons:
Direct materials cost, for 5,000 gallons
5,000
Conversion costs, for 5,000 gallons, 70% completed
1,225
Total inventory in process, July 1
6,225
Direct materials cost for July, 60,000 gallons
66,000
Direct labor cost for July
10,500
Factory overhead applied for July
7,275
Costs incurred in July
83,775
Total production costs to account for
90,000
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Step 4: Allocate Costs to Units Transferred
Out and Partially Completed Units (slide 3 of 8)
• The units to be assigned these costs follow. The
costs to be assigned these units are indicated by
question marks.
Group
Specifics
Whole
Units
(Gallons)
Total Cost ($)
Group 1
Inventory in process, July 1,
completed in July
5,000
?
Group 2
Started and completed in July
57,000
?
Transferred out to the
Packaging Department in July
62,000
?
Inventory in process, July 31
3,000
?
65,000
90,000
Group 3
Total
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Step 4: Allocate Costs to Units Transferred
Out and Partially Completed Units (slide 4 of 8)
• The 5,000 gallons of inventory in process on July
1 (Group 1) were completed and transferred out
to the Packaging Department in July. The cost of
these units is determined as follows:
Specifics
Direct Materials
Costs ($)
Conversion
Costs ($)
Inventory in process, July 1 balance
0
0
Equivalent units for completing the July 1
in-process inventory
0
1,500
Cost per equivalent unit
× 1.10
Cost of July 1 in-process inventory
0
Cost of July 1 in-process inventory
transferred to the Packaging
Department
Total
Costs ($)
6,225
× 0.30
450
450
6,675
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Step 4: Allocate Costs to Units Transferred
Out and Partially Completed Units (slide 5 of 8)
• The 57,000 units started and completed in July
(Group 2) incurred all (100%) of their direct
materials and conversion costs in July.
o Thus, the cost of the 57,000 gallons started and
completed is computed by multiplying 57,000 gallons
by the costs per equivalent unit for materials and
conversion costs as follows:
Specifics
Units started and
completed in July
Cost per equivalent unit
Cost of the units started
and completed in July
Direct
Materials Cost
Conversion
Costs
57,000 gallons
57,000 gallons
× $1.10
× $0.30
$62,700
$17,100
Total
Costs
$79,800
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Step 4: Allocate Costs to Units Transferred
Out and Partially Completed Units (slide 6 of 8)
• The total cost transferred to the Packaging
Department in July is the sum of the beginning
inventory cost and the costs of the units started
and completed in July, computed as follows:
Group
Specifics
Amount ($)
Group 1
Cost of July 1 in-process inventory
6,675
Group 2
Cost of the units started and
completed in July
79,800
Total costs transferred to the
packaging department in July
86,475
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Step 4: Allocate Costs to Units Transferred
Out and Partially Completed Units (slide 7 of 8)
• The 3,000 gallons in process on July 31 (Group
3) incurred all their direct materials costs and
25% of their conversion costs in July. The cost of
these partially completed units is computed as
follows:
Specifics
Direct Materials
Costs
Conversion
Costs
Equivalent units in ending
inventory
3,000 gallons
750 gallons
Cost per equivalent unit
× $1.10
× $0.30
Cost of 31 July in-process
inventory
$3,300
$225
Total Costs
$3,525
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Step 4: Allocate Costs to Units Transferred
Out and Partially Completed Units (slide 8 of 8)
• To summarize, the total manufacturing costs for
Frozen Delight in July were assigned as follows:
Whole Units
(Gallons)
Group
Specifics
Group 1
Inventory in process, July 1,
completed in July
5,000
6,675
Group 2
Started and completed in July
57,000
79,800
Transferred out to the
Packaging Department in
July
62,000
86,475
Inventory in process, July 31
3,000
3,525
Total
65,000
90,000
Group 3
Total Cost ($)
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Preparing the Cost of Production Report
• A cost of production report is prepared for each
processing department at periodic intervals.
• The report summarizes the following production
quantity and cost data:
o The units for which the department is accountable
and the disposition of those units.
o The production costs incurred by the department and
the allocation of those costs between completed
(transferred out) and partially completed units.
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Cost of Production Report for Frozen
Delight’s Mixing Department—F I F O
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Check Up Corner
Cost per Equivalent Unit
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Check Up Corner
Cost per Equivalent Unit
Solution (slide 1 of 2)
a. 1.
2.
Costs per equivalent unit are used to allocate the direct
materials and conversion costs to the completed and
partially completed units in part b.
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Check Up Corner
Cost per Equivalent Unit
Solution (slide 2 of 2)
b.
Direct
Materials
Costs ($)
Specifics
Conversion
Costs($)
Inventory in process, beginning of period
1,860
To complete inventory in process, beginning
of period
Started and completed during the period
0
$420a
420
21,600b
8,100c
29,700
Transferred out of Bottling (completed)
Inventory in process, end of period
Total
Costs($)
31,980
1,200d
270e
1,470
Total costs assigned by the Bottling
Department
33,450
Completed and transferred out of production
31,980
Inventory in process, ending
1,470
a1,400 units × $0.30 = $420
b27,000 units × $0.80 = $21,600
d1,500 units × $0.80 = $1,200
c27,000 units × $0.30 = $8,100
e900 units × $0.30 = $270
No materials cost is added
during the current period for
beginning inventory.
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Journal Entries for a Process Cost System
(slide 1 of 6)
• The journal entries for Frozen Delight’s July
transactions are shown on the next four slides.
o To simplify, the entries are shown in summary form,
even though many of the transactions would be
recorded daily.
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Journal Entries for a Process Cost System
(slide 2 of 6)
a. Purchased materials, including milk, cream, sugar, packaging, and
indirect materials on account, $88,000.
Materials
$88,000
Accounts Payable
$88,000
a. The Mixing Department requisitioned milk, cream, and sugar,
$66,000. This is the total amount from the original July data.
Packaging materials of $8,000 were requisitioned by the Packaging
Department. Indirect materials for the Mixing and Packaging
departments were $4,125 and $3,000, respectively.
Work in Process—Mixing
$66,000
Work in Process—Packaging
$8,000
Factory Overhead—Mixing
$4,125
Factory Overhead—Packaging
$3,000
Materials
$81,125
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Journal Entries for a Process Cost System
(slide 3 of 6)
c. Incurred direct labor in the Mixing and Packaging
departments of $10,500 and $12,000, respectively.
Work in Process—Mixing
$10,500
Work in Process—Packaging
$12,000
Wages Payable
$22,500
c. Recognized equipment depreciation for the Mixing and
Packaging departments of $3,350 and $1,000,
respectively.
Factory Overhead—Mixing
$3,350
Factory Overhead—Packaging
$1,000
Wages Payable
$4,350
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Journal Entries for a Process Cost System
(slide 4 of 6)
e. Applied factory overhead to Mixing and Packaging
departments of $7,275 and $3,500, respectively.
Work in Process—Mixing
$7,275
Work in Process—Packaging
$3,500
Factory Overhead—Mixing
$7,725
Factory Overhead—Packaging
$3,500
e. Transferred costs of $86,475 from the Mixing
Department to the Packaging Department per the cost
of production report.
Work in Process—Packaging
$86,475
Work in Process—Mixing
$86,475
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Journal Entries for a Process Cost System
(slide 5 of 6)
g. Transferred goods of $106,000 out of the Packaging
Department to Finished Goods according to the
Packaging Department cost of production report.
Finished Goods—Ice Cream
$106,000
Work in Process—Packaging
$106,000
g. Recorded the cost of goods sold out of the finished
goods inventory of $107,000.
Cost of Goods Sold
$107,000
Finished Goods—Ice Cream
$107,000
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Frozen Delight’s Cost Flows
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Journal Entries for a Process Cost System
(slide 6 of 6)
• The ending inventories for Frozen Delight are
reported on the July 31 balance sheet as
follows:
Specifics
Amount ($)
Materials
6,875
3,525
Work in process–Mixing Department
(Determined from the cost of
production report)
Work in process–Packaging Department
7,725
Finished Goods
4,000
Total inventories
22,125
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Check Up Corner
•
Process Costing Journal Entries
The cost of materials transferred into the Bottling Department of Rocky Springs
Beverage Company is $22,800, including $20,000 from the Blending Department
and $2,800 from the materials storeroom. The conversion costs for the period in
the Bottling Department are $8,790 ($3,790 factory overhead applied and $5,000
direct labor). The total cost transferred to Finished Goods during the period is
$31,980. The Bottling Department had a beginning work in process inventory of
$1,860.
a.
Journalize:
1.
2.
3.
b.
The cost of transferred-in materials
The conversion costs
The costs transferred out
Determine the balance of Work in Process—Bottling at the end of
the period.
• Note: The costs transferred out of the Bottling Department and the cost of the
Bottling Department’s ending inventory are computed in Check Up Corner 17-2.
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Check Up Corner
Process Costing Journal Entries
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Using the Cost of Production Report for
Decision Making—Frozen Delight (slide 1 of 3)
• Frozen Delight’s cost of production report for the
Mixing Department shows that beginning
inventory is $6,225 (see slide 40). The July 1
inventory in process of $6,225 consists of the
following costs:
Specifics
Amount ($)
Direct materials cost, 5,000
gallons
5,000
Conversion costs, 5,000
gallons, 70% completed
1,225
Total inventory in
process, July 1
6,225
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Using the Cost of Production Report for
Decision Making—Frozen Delight (slide 2 of 3)
• Using the preceding data, the June costs per
equivalent unit of materials and conversion costs
can be determined as follows:
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Using the Cost of Production Report for
Decision Making—Frozen Delight (slide 3 of 3)
• In July, the cost per equivalent unit of materials
increased by $0.10 per gallon, while the cost per
equivalent unit for conversion costs decreased
by $0.05 per gallon, computed as follows:
Specifics
July ($)*
June ($)
Increase
(Decrease) ($)
Cost per equivalent unit for direct
materials
1.10
1.00
0.10
Cost per equivalent unit for
conversion costs
0.30
0.35
(0.05)
*From Exhibit 8
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Using the Cost of Production Report for
Decision Making—Holland Beverage Company
(slide 1 of 2)
• A cost of production report may be prepared showing more
cost categories beyond just direct materials and conversion
costs.
• To illustrate, the Blending Department of Holland Beverage
Company prepared cost of production reports for April and
May showing multiple cost categories, as follows:
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Using the Cost of Production Report for
Decision Making—Holland Beverage Company
(slide 2 of 2)
• The May results indicate that total unit costs have
increased from $0.50 to $0.53, or 6% in May.
• To determine the possible causes for this increase, the
cost of production report is restated in per-unit terms by
dividing the costs by the number of units completed, as
follows:
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Yield
(slide 1 of 2)
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Yield
(slide 2 of 2)
• Assume that 1,000 pounds of sugar enter the
Packaging Department, and 980 pounds of sugar
were packed.
o
The yield is computed as follows:
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Appendix: Determining Cost Using the Average
Cost Method (slide 1 of 2)
• Assume that S&W Ice Cream Company (S&W)
mixes direct materials (milk, cream, sugar) in
refrigerated vats and has two manufacturing
departments, Mixing and Packaging.
o The manufacturing data for the Mixing Department for
July are as follows:
Specifics
Amount ($)
Inventory in process, July 1, 5,000 gallons (70% completed)
6,200
Direct materials cost incurred in July, 60,000 gallons
66,000
Direct labor cost in July
10,500
Factory overhead applied in July
6,405
Total production costs to account for
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
89,105
Appendix: Determining Cost Using the Average
Cost Method (slide 2 of 2)
• Under the average cost method, all production
costs (materials and conversion costs) are
combined together for determining equivalent
units and cost per equivalent unit.
Amount
Specifics
(To be determined by
preparing a cost of
production report)
Cost of goods transferred to Packaging in July
(includes units in process on July 1), 62,000
gallons
?
Cost of work in process inventory, July 31,
3,000 gallons, 25% completed as to
conversion costs
?
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Appendix: Step 1:
Determine the Units to Be Assigned Costs (slide 1 of 3)
• The first step is to determine the units to be assigned
costs.
o
A unit can be any measure of completed production, such
as tons, gallons, pounds, barrels, or cases.
▪ For S&W, a unit is a gallon of ice cream.
• S&W’s Mixing Department had 65,000 gallons of direct
materials to account for during July, as shown here:
Specifics
Total Gallons to
Account for
Inventory in process, July 1
5,000 gallons
Received from materials storeroom
60,000 gallons
Total units to account for by the Packaging Department
65,000 gallons
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Appendix: Step 1:
Determine the Units to Be Assigned Costs (slide 2 of 3)
• There are two groups of units to be assigned
costs for the period.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Appendix: Step 1:
Determine the Units to Be Assigned Costs (slide 3 of 3)
• The total units (gallons) to be assigned costs for
S&W can be summarized as follows:
Group
Specifics
Number of Gallons
Group 1
Units transferred out to the
Packaging Department in July
62,000
Group 2
Inventory in process, July 31
3,000
65,000
Total gallons to be assigned
costs
(Total gallons to be assigned
costs equal the total units to
account for)
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Appendix: Step 2:
Compute Equivalent Units of Production (slide 1 of 2)
• S&W has 3,000 gallons of whole units in the work in process
inventory for the Mixing Department on July 31. Because these
units are 25% complete, the number of equivalent units in
process in the Mixing Department on July 31 is 750 gallons
(3,000 gallons × 25%). Because the units transferred to the
Packaging Department have been completed, the whole units
(62,000 gallons) transferred are the same as the equivalent units
transferred.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Appendix: Step 2:
Compute Equivalent Units of Production (slide 2 of 2)
• The total equivalent units of production for the Mixing
Department are determined by adding the equivalent units in
the ending work in process inventory to the units transferred
and completed during the period, computed as follows:
Specifics
Number of Gallons
Equivalent units completed and transferred to
the Packaging Department during July
62,000
Equivalent units in ending work in process,
July 31
750
Total equivalent units
62,750
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Appendix: Step 3:
Determine the Cost per Equivalent Unit
• Because materials and conversion costs are combined
under the average cost method, the cost per equivalent
unit is determined by dividing the total production costs
by the total equivalent units of production as follows:
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Appendix: Step 4: Allocate Costs to
Transferred Out and Partially Completed Units
• The cost of transferred and partially completed
units is determined by multiplying the cost per
equivalent unit times the equivalent units of
production. For S&W’s Mixing Department, these
costs are determined as follows:
Group
Specifics
Amount ($)
Group 1
Transferred out to the Packaging
Department (62,000 gallons × $1.42)
88,040
Group 2
Inventory in process, July 31 (3,000
gallons × 25% × $1.42)
1,065
Total production costs
89,105
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Cost of Production Report for S&W’s
Mixing Department—Weighted Average Method
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Managerial
Accounting
Carl S. Warren
Professor Emeritus of Accounting
University of Georgia, Athens
William B. Tayler
Brigham Young University
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
15e
Managerial Accounting, 15e
Carl S. Warren
William B. Tayler
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Library of Congress Control Number: 2018954981
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ISBN: 978-1-337-91202-0
Cengage
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Printed in the United States of America
Print Number: 01
Print Year: 2018
Preface
Roadmap for Success
Warren/Tayler Managerial Accounting, 15e, provides a sound pedagogy for giving s­ tudents a solid
foundation in managerial accounting. Warren/Tayler covers the fundamentals AND ­motivates students to learn by showing how accounting is important to businesses.
Warren/Tayler is successful because it reaches students with a combination of new and tried-andtested pedagogy.
This revision includes a range of new and existing features that help Warren/Tayler provide
­students with the context to see how accounting is valuable to business. These include:
▪▪ New! Make a Decision section
▪▪ New! Pathways Challenge
▪▪ New! Certified Management Accountant (CMA®) Examination Questions
Warren/Tayler also includes a thorough grounding in the fundamentals that any business student
will need to be successful. These key features include:
▪▪ Presentation style designed around the way students learn
▪▪ Updated schema
▪▪ At the start of each chapter, a schema, or roadmap, shows students what they are going to
learn and how it is connected to the larger picture. The schema illustrates how the chapter
content lays the foundation with managerial concepts and principles. Then it moves students
through developing the information and ultimately into evaluating and analyzing information
in order to make decisions.
Chapter
15
Statement
of Cash Flows
Principles
Chapter 1 Introduction to Managerial Accounting
Developing Information
COST SYSTEMS
Chapter 2
Chapter 3
Chapter 4
COST ALLOCATIONS
Chapter 5
Chapter 5
Job Order Costing
Process Costing
Support Departments
Joint Costs
Activity-Based Costing
Decision Making
PLANNING AND EVALUATING TOOLS
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Cost-Volume-Profit Analysis
Variable Costing
Budgeting Systems
Standard Costing and Variances
Decentralized Operations
STRATEGIC TOOLS
Chapter 12
Chapter 13
Chapter 13
Chapter 14
Chapter 14
Capital Investment Analysis
Lean Manufacturing
Activity Analysis
The Balanced Scorecard
Corporate Social Responsibility
Differential Analysis
Chapter 15
Financial
accounting
Statement
of Cash Flows
Managerial
accounting
Chapter 16
Financial Statement
Analysis
698
12020_ch15_rev02_698-757.indd 698
8/4/18 11:45 AM
iii
iv
Preface
312
Chapter 7 Variable Costing for Management Analysis
▪▪ Link to the “opening company” of each chapter
examples
how
the byconcepts
The $80,000calls
increaseout
in operating
income underof
Proposal
2 is caused
the allocation of the
fixed manufacturing costs of $400,000 over a greater number of units manufactured. Specifically,
introduced in the chapter are connected to the
opening
company.
This
shows
how
accountan increase in production from 20,000 units to 25,000 units means that the
fixed manufacturing
cost per unit decreases from $20 ($400,000 ÷ 20,000 units) to $16 ($400,000 ÷ 25,000 units). Thus,
ing is used in the real world by real companies.
the cost of goods sold when 25,000 units are manufactured is $4 per unit less, or $80,000 less in
total (20,000 units sold × $4). Since the cost of goods sold is less, operating income is $80,000
more when 25,000 units rather than 20,000 units are manufactured.
Managers should be careful in analyzing operating income under absorption costing when finished goods inventory changes. Increases in operating income may be created by simply increasing finished goods inventory. Thus, managers could misinterpret such increases (or decreases) in
operating income as due to changes in sales volume, prices, or costs.
Adobe Systems Inc.
A
ssume that you have three different options for a summer job.
How would you evaluate these options? Naturally there are
many things to consider, including how much you could earn from
each job.
Determining how much you could earn from each job may
not be as simple as comparing the wage rate per hour. For example, a job as an office clerk at a local company pays $8 per hour. A
job delivering pizza pays $10 per hour (including estimated tips),
although you must use your own transportation. Another job working in a beach resort over 500 miles away from your home pays $8
per hour. All three jobs offer 40 hours per week for the whole summer. If these options were ranked according to their pay per hour,
the pizza delivery job would be the most attractive. However, the
costs associated with each job must also be evaluated. For example, the office job may require that you pay for downtown parking and purchase office clothes. The pizza delivery job will require
you to pay for gas and maintenance for your car. The resort job will
require you to move to the resort city and incur additional living
costs. Only by considering the costs for each job will you be able to
determine which job will provide you with the most income.
Just as you should evaluate the relative income of various
choices, a business also evaluates the income earned from its
choices. Important choices include the products offered and the
geographical regions to be served.
A company will often evaluate the profitability of products
and regions. For example, Adobe Systems Inc. (ADBE),
one of the largest software companies in the world, determines
the income earned from its various product lines, such as Acrobat®,
Photoshop®, Premiere®, and Dreamweaver® software. Adobe uses
this information to establish product line pricing, as well as sales,
support, and development effort. Likewise, Adobe evaluates the
income earned in the geographic regions it serves, such as the
United States, Europe, and Asia. Again, such information aids management in managing revenue and expenses within the regions.
In this chapter, how businesses measure profitability using
absorption costing and variable costing is discussed. After illustrating and comparing these concepts, how businesses use them for
controlling costs, pricing products, planning production, analyzing
market segments, and analyzing contribution margins is described
and illustrated.
Link to
Adobe Systems
Under variable costing, operating income is $200,000, regardless of whether 20,000 units or
25,000 units are manufactured. This is because no fixed manufacturing costs are allocated to the
units manufactured. Instead, all fixed manufacturing costs are treated as a period expense.
To illustrate, Exhibit 8 shows the variable costing income statements for Frand for the
production of 20,000 units, 25,000 units, and 30,000 units. In each case, the operating income
is $200,000.
Chapter 2
Pete Jenkins/AlAmy stock Photo
Exhibit 8
Variable Costing
Income Statements
for Three Production
Levels
52
Job Order Costing
In a recent absorption costing income statement, Adobe Systems reported (in millions) total revenue
of $5,854, cost of revenue of $820, gross profit of $5,034, operating expenses of $3,541, and operating
income of $1,493.
Frand Manufacturing Company
Variable Costing Income Statements
Sales (20,000 units × $75) . . . . . . . . . . . . . . . .
Variable cost of goods sold:
Variable cost of goods manufactured:
(20,000 units × $35) . . . . . . . . . . . . . . .
(25,000 units × $35) . . . . . . . . . . . . . . .
(30,000 units × $35) . . . . . . . . . . . . . . .
Ending inventory:
(0 units × $35) . . . . . . . . . . . . . . . . . . . .
(5,000 units × $35) . . . . . . . . . . . . . . . .
(10,000 units × $35) . . . . . . . . . . . . . . .
Total variable cost of goods sold . . . . . .
Manufacturing margin. . . . . . . . . . . . . . . . . . .
Variable selling and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contribution margin. . . . . . . . . . . . . . . . . . . . .
Fixed costs:
Fixed manufacturing costs . . . . . . . . . . .
Fixed selling and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Total fixed costs . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . .
20,000 Units
Manufactured
25,000 Units
Manufactured
30,000 Units
Manufactured
$1,500,000
$1,500,000
$ 1,500,000
$ (700,000)
$ (875,000)
$(1,050,000)
0
175,000
$ (700,000)
$ 800,000
$ (700,000)
$ 800,000
350,000
$ (700,000)
$ 800,000
(100,000)
$ 700,000
(100,000)
$ 700,000
(100,000)
$ 700,000
no discrepancies, a journal entry is made to record the purchase. The journal
entry$ to
record$ (400,000)
the
$ (400,000)
(400,000)
supplier’s invoice related to Receiving Report No. 196 in Exhibit 4 is as follows:
(100,000)
(100,000)
(100,000)
Link to Adobe Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pages 305, 309, 312, 316, 319
$ (500,000)
$ 200,000
$ (500,000)
$ 200,000
$ (500,000)
$ 200,000
303
12020_ch07_ptg01_302-351.indd 303
A 5 L 1
1
1
a.
E
Materials
Accounts Payable
Materials purchased during December.
10,500
10,500
7/12/18 12:15 PM
The storeroom releases materials for use in manufacturing when a materials requisition is
received. Examples of materials requisitions are shown in Exhibit 4.
The materials requisitions for each job serve as the basis for recording materials used. For direct
materials, the quantities and amounts from the materials requisitions are posted to job cost sheets. Job
▪▪ To
aid comprehension
and to demonstrate
themake
impact
journal
entriesledger.
include
cost
sheets,
which are also illustrated
in Exhibit 4,
up of
thetransactions,
work in process
subsidiary
the
net
effect
of
the
transaction
on
the
accounting
equation.
Exhibit 4 shows the posting of $2,000 of direct materials to Job 71 and $11,000 of direct
materials to Job 72.2 Job 71 is an order for 20 units of Jazz Series guitars, while Job 72 is an order
for 60 units of American Series guitars.
A summary of the materials requisitions is used as a basis for the journal entry recording the
materials used for the month. For direct materials, this entry increases (debits) Work in Process and
decreases (credits) Materials as follows:
12020_ch07_ptg01_302-351.indd 312
A 5 L 1
12
E
b.
Work in Process
Materials
Materials requisitioned to jobs
($2,000 + $11,000).
13,000
13,000
Many companies use computerized information processes to record the use of materials. In
such cases, storeroom employees electronically record the release of materials, which automatically updates the materials ledger and job cost sheets.
Ethics: Do It!
ETHICS
Phony
Invoice Scams
this information to create a fictitious invoice. The invoice
7/12/18 12:15 PM
Preface
▪▪ Located in each chapter, Why It M
­ atters shows students how accounting is important
to ­businesses with which they are familiar. A Concept Clip icon indicates which Why It
Matters features have an accompanying concept clip video in CNOWv2.
CONCEPT CLIP
476
Chapter 10
Evaluating Decentralized Operations
Why It Matters
CONCEPT CLIP
Coca-Cola Company: Go West Young Man
A
major decision early in the history of Coca-Cola (KO) was to ex314
Chapter 7 Variable Costing
for Management
pand
outside Analysis
of the United States to the rest of the world. As a result,
Coca-Cola
is known today the world over. What is revealing is how
Solution:
a. (1)
this
decision has impacted the revenues and profitability of Coca-Cola across
Absorption Costing Income Statements
(30,000 The
units produced
× $40 variable
its international and
North
following
table shows
Proposal 2: segments.
Proposal
1: American
manufacturing cost per unit) + $600,000
40,000 Units
30,000 Units
the percent of revenues
and percent
of operating
fixed cost income from the internaManufactured Manufactured
Sales (30,000 unitstional
× $100) and North American
$ 3,000,000 geographic
$ 3,000,000 segments.
(40,000 units produced × $40 variable manufacturing
Cost of goods sold:
Cost of goods manufactured
Ending inventory
Total cost of goods sold
Gross profit
Selling and administrative expenses
Operating income
$(1,800,000)
—
$(1,800,000)
$ 1,200,000
(350,000)
$ 850,000
$(2,200,000)
550,000
$(1,650,000)
$ 1,350,000
(350,000)
$ 1,000,000
$(1,200,000)
$ 1,800,000
(210,000)
$ 1,590,000
$(1,200,000)
$ 1,800,000
(210,000)
$ 1,590,000
$ (600,000)
(140,000)
$ (740,000)
$ 850,000
$ (600,000)
(140,000)
$ (740,000)
$ 850,000
different story. More than 65% of Coca- Cola’s profitability comes
from international segments. Given the revenue segmentation,
this suggests that the international profit margins must be higher
than the North American profit margin. Indeed this is the case, as
can be seen in the following table:
Profit Margin
International average
North America
cost per unit) + $600,000 fixed cost
Operating
10,000 units (40,000 produced
– 30,000 sold)
× $55 per unit ($2,200,000 ÷ 40,000 units)
Revenues
Income
48.4%
24.2%
The average profit margin for all the international segments is
two times as large as the North American segment. These results
(2)
reflect the heart of the Coca-Cola marketing strategy. In international markets, Coca-Cola is able to charge relatively higher prices
Proposal 2:
Proposal 1:
due to high demand and less competition as compared to the North
Units 7 Variable
30,000 Units350 40,000
Chapter
Costing
Management
Analysis
30,000
units for
produced
× $40 variable
The first column
showsManufactured
that the international
provide
Manufactured
manufacturing costsegments
per unit
American market.
Sales (30,000 units × $100)
2. units
Chassen
Company,
a cracker and cookie manufacturer, has the following unit costs for the
produced
× $40 variable
over 58% of the$ 3,000,000
revenues,$ 3,000,000
while North40,000
America
provides
almost
Variable cost of goods sold:
month
June:
manufacturing
costofper
unit
Variable cost of goods
$(1,200,000) However,
$(1,600,000)
Variable manufacturing
cost The Coca-Cola
$5.00
Source:
Company, Form 10-K for the Fiscal Year Ended December 31, 2017.
42%manufactured
of the revenues.
the 10,000
operating
income
a
units (40,000 produced
– 30,000 tells
Ending inventory
—
400,000
International segments
North American segment
Variable
Total Costing Income Statements
Total variable cost of goods sold
Manufacturing margin
Variable selling and administrative expenses
Contribution margin
Fixed costs:
Fixed manufacturing costs
Fixed selling and administrative expenses
Total fixed costs
Operating income
(30,000 units sold × $7 variable selling cost per
unit) + $140,000
58.4%
41.6
Variable Costs
100%
65.6%
34.4
100%
sold) × $40 variable cost per unit
Variable marketing cost
Fixed manufacturing cost
Fixed marketing cost
3.50
2.00
4.00
30,000 units sold × $7 variable
selling cost
unitof 100,000 units were manufactured during June, of which 10,000 remain in ending
A per
total
the only finished goods inventory at June 30. Under the absorption costing concept, the
Residualare Income
inventory. Chassen uses the first-in, first-out (FIFO) inventory method, and the 10,000 units
Fixed Costs
value of Chassen’s June 30 finished goods inventory would be:
▪▪ New! Pathways Challenge encourages
students’
interest
in accounting
emphasizes of the return on investment.
Residual income
is useful
in overcoming
some of and
the disadvantages
a. $50,000.
b. $70,000.
Residual income
is
the
excess
of
operating
income
over
aChallenge
minimum acceptable operating income,
the
critical
thinking
aspect
of
accounting.
A
suggested
answer
to
the
Pathways
$85,000.
b. The difference (in a.) is caused by including $150,000 fixed manufacturing costs (10,000 units × $15 fixedc.manufacturing
cost per unit) in the
d. $145,000. 7.
ending inventory, which decreases the cost of goods sold and increases theas
operating
income byin
$150,000.
shown
Exhibit
is provided at the end of the chapter. 3. Mill Corporation had the following unit costs for the recent calendar year:
Check Up Corner
Manufacturing
Nonmanufacturing
Pathways
Challenge
Exhibit
7
Variable
Fixed
$8.00
2.00
$3.00
5.50
Operating Inventory
income for Mill’s sole product totaled 6,000 units on January 1 and 5,200 units on
December 31. When
compared
to variable
income, Mill’s absorption costing income is:
Minimum acceptable
operating
income
ascosting
a
a. $2,400 lower.
Economic Activity
percent ofb.invested
assets
$2,400 higher.
Absorption costing is required by generally accepted accounting principles (GAAP) for reporting to exterc. $6,800 lower.
Residual
nal stakeholders. Thus, auto manufacturers like Ford
Motor income
Company (F) and General Motors
$ XXX
Residual
Income
This is
Accounting!
(XXX)
$ XXX
$6,800 higher.
Company (GM) use absorption costing in preparing their financiald.statements.
Under absorption costing,
fixed manufacturing costs are included in inventory. Thus, the4.
moreBethany
cars the auto
companies
lower
Company
hasmake,
just the
completed
the first month of producing a new product but has
the fixed cost per car and the smaller the cost of goods sold. In the years
preceding
the U.S.
and The product incurred variable manufacturing costs of
not yet
shipped
anyfinancial
of this crisis
product.
economic downturn of 2008, Ford and General Motors produced more
cars than were
to customers.1 costs of $2,000,000, variable marketing costs of $1,000,000,
$5,000,000,
fixedsold
manufacturing
Critical Thinking/Judgment
and fixed marketing costs of $3,000,000.
Under the variable costing concept, the inventory value of the new product would be:
The minimum acceptable operating income is computed by multiplying the company minimum
return on investment by the invested assets. The minimum rate is set by top management, based
d. $11,000,000.
on such factors
as theanswer
cost
ofof chapter.
financing.
Suggested
at end
Marielle Segarra, “Why the Big Three Put Too Many Cars on the
CFO.com (ww2.cfo.com/management-accounting/2012/02/
ToLot,”illustrate,
assume that DataLink Inc. has established 10% as the minimum acceptable return
why-the-big-three-put-too-many-cars-on-the-lot/), February 2, 2012.
Pathways
Challenge
on investment
for divisional
assets. The residual incomes for the three divisions are shown in
Exhibit 8.
This is Accounting!
If Ford and General Motors have high fixed costs and low variable costs,
how would producing more cars
a. $5,000,000.
affect their operating income under absorption costing? under variable
b. costing?
$6,000,000.
If absorption costing allows companies like Ford and General Motors to change their operating income by
c. $8,000,000.
increasing or decreasing production, why does GAAP require absorption costing?
1
Information/Consequences
12020_ch07_ptg01_302-351.indd 314
Exhibit 8
7/12/18 12:15 PM
By producing more cars than were sold, Ford (F) and General Motors (GM) increased their operating income reported under absorption costing. This is because a portion of their fixed manufacturing costs
were included in ending inventory rather than cost of goods sold.
Northern Division
Residual Income—
DataLink, Inc.
12020_ch07_ptg01_302-351.indd 350
Central Division
Southern Division
Underincome
variable costing, producing more cars would not affect operating
income, because all fixed manufacOperating
$ 70,000
$ 84,000
turing costs are included in cost of goods sold regardless of how many cars are produced.
$ 75,000
Minimum acceptable operating income
A reason often given for why GAAP requires absorption costing is that it focuses on operating income “over
as a percent
invested
assets:
the longof
term.
” In other words,
while operating income may vary from year to year, all manufacturing costs
are eventually
reported on the income statement as cost of goods sold
or as a write-down of inventory using
$350,000
× 10%
(35,000)
the lower-of-cost-or-market rule. Thus, over the life of a company, the total amount of operating income will
be the same
regardless of whether absorption or variable costing is used.
$700,000
× 10%
(70,000)
$500,000 × 10%
Suggested Answer
Residual income
$ 35,000
$ 14,000
(50,000)
$ 25,000
7/12/18 12:15 PM
v
Preface
▪▪ To aid learning and problem solving, throughout each chapter the Check Up Corner
exercises provide students with step-by-step guidance on how to solve problems. Problemsolving tips help students avoid common errors.
Chapter 10
Check Up Corner 10-1
Evaluating Decentralized Operations
467
Cost Center Responsibility Measures
Delinco Tech Inc. manufactures corrosion-resistant water pumps and fluid meters. Its Commercial Products
Division is organized as a cost center. The division’s budget for the month ended July 31 is as follows
(in thousands):
Materials
Factory wages
Supervisor salaries
Utilities
Depreciation of plant equipment
Maintenance
Insurance
Property taxes
$140,000
77,000
15,500
8,700
9,000
3,200
750
800
$254,950
During July, actual costs incurred in the Commercial Products Division were as follows:
Materials
Factory wages
Supervisor salaries
Utilities
Depreciation of plant equipment
Maintenance
Insurance
Property taxes
$152,000
77,800
15,500
8,560
9,000
3,025
750
820
$267,455
Prepare a budget performance report for the director of the Commercial Products Division for July.
Solution:
The report shows the budgeted costs and
actual costs along with the differences.
Budget Performance Report
Director, Commercial Products Division
For the Month Ended July 31
Materials ………………………………..
Factory wages ………………………….
Supervisor salaries…………………….
Utilities…………………………………..
Depreciation of plant equipment ….
Maintenance……………………………
Insurance ……………………………….
Property taxes ………………………….
Actual
Budget
$152,000
77,800
15,500
8,560
9,000
3,025
750
820
$267,455
$140,000
77,000
15,500
8,700
9,000
3,200
750
800
$254,950
}
vi
Over
Budget
The report allows cost center
managers to focus on areas
of significant differences.
(Under)
Budget
$12,000
800
$(140)
Each difference is classified as
over budget or under budget.
(175)
20
$12,820
$(315)
Check Up Corner
Preface
▪▪ Analysis for Decision ­Making ­highlights how companies use accounting ­information to make
decisions and evaluate their business. This provides students with context of why accounting
is important 376
to companies.
Chapter 8 Budgeting
Analysis for Decision Making
Objective 6
Describe and
illustrate the use of
staffing budgets for
nonmanufacturing
businesses.
Nonmanufacturing Staffing Budgets
The budgeting illustrated in this chapter is similar to budgeting used for nonmanufacturing
businesses. However, many nonmanufacturing businesses often do not have direct materials
purchases budgets, direct labor cost budgets, or factory overhead cost budgets. Thus, the budgeted income statement is simplified in many nonmanufacturing settings.
A primary budget in nonmanufacturing businesses is the labor, or staffing, budget. This budget, which is highly flexible to service demands, is used to manage staffing levels. For example,
a theme park will have greater staffing in the summer vacation months than in the fall months.
Likewise, a retailer will have greater staffing during the holidays than on typical weekdays.
To illustrate, Concord Hotel operates a hotel in a business district. The hotel has 150 rooms
that average 120 guests per night during the weekdays and 50 guests per night during the weekend. The housekeeping staff is able to clean 10 rooms per employee. The number of housekeepers required for an average weekday and weekend is determined as follows:
Weekday
Weekend
120
÷ 10
12
50
÷ 10
5
Number of guests per day
Rooms per housekeeper
Number of housekeepers per day
If each housekeeper is paid $15 per hour for an eight-hour shift per day, the annual budget
for the staff is as follows:
Weekday
Number of housekeepers per day
Hours per shift
Days per year
Number of hours per year
Rate per hour
Housekeeping staff annual budget
12
8
260*
24,960
×
$15
Weekend
Total
5
8
104**
4,160
× $15
×
×
×
×
$374,400
$62,400
$436,800
* 52 weeks × 5 days
** 52 weeks × 2 days
The budget can be used to plan and manage the staffing of the hotel. For example,
if a wedding were booked for the weekend, the budgeted increase in staffing could be
compared with the increased revenue from the wedding to verify the profit plan.
Make a Decision
Nonmanufacturing Staffing Budgets
Analyze Johnson Stores’ staffing budget for holidays (MAD 8-1)
▪▪ Make a Decision in the end-of-chapter
material gives students a chance to analyze real-world
Analyze Mercy Hospital’s staffing budget (MAD 8-2)
Chapter 6 Cost-Volume-Profit Analysis
297
business decisions.
Analyze Adventure Park’s staffing budget (MAD 8-3)
Analyze Ambassador Suites’ staffing budget (MAD 8-4)
Make a Decision
Make a Decision
Cost-Volume-Profit Analysis for Service Companies
MAD 6-1 Analyze Global Air’s cost-volume-profit relationships
Obj. 6
Global Air is considering a new flight between Atlanta and Los Angeles. The average fare per
seat for the flight is $760. The costs associated with the flight are as follows:
12020_ch08_ptg01_352-409.indd 376
Fixed costs for the flight:
Crew salaries . . . . . . . . . . . . . . . . . . $ 5,000
Operating costs . . . . . . . . . . . . . . . 50,000
Aircraft depreciation . . . . . . . . . . 25,000
Total . . . . . . . . . . . . . . . . . . . . . . . . $80,000
Variable costs per passenger:
Passenger check-in . . . . . . . . . . .
Operating costs . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . .
16/07/18 6:34 am
$ 20
100
$120
The airline estimates that the flight will sell 175 seats.
a. Determine the break-even number of passengers per flight.
b. Based on your answer in (a), should the airline add this flight to its schedule?
c. How much profit should each flight produce?
What additional issues might the airline consider in this decision?
d.
MAD 6-2 Analyze Ocean Escape Cruise Lines’ cost-volume-profit relationships
Obj. 6
Ocean Escape Cruise Lines has a boat with a capacity of 1,200 passengers. An eight-day ocean
cruise involves the following costs:
Crew
Fuel
Fixed operating costs
$240,000
60,000
800,000
The variable costs per passenger for the eight-day cruise include the following:
Meals
Variable operating costs
$900
400
The price of the cruise is $2,400 per passenger.
a. Determine the break-even number of passengers for the eight-day cruise.
b. Assume 900 passengers booked the cruise. What would be the profit or loss for the cruise?
c. Assume the cruise was booked to capacity. What would be the profit or loss for the cruise?
If the cruise cannot book enough passengers to break even, how might the cruise
d.
line respond?
MAD 6-3 Analyze Star Stream’s cost-volume-profit relationships
Obj. 6
Star Stream is a subscription-based video streaming service. Subscribers pay $120 per year for the
service. Star Stream licenses and develops content for its subscribers. In addition, Star Stream leases
servers to hold this content. These costs are not variable to the number of subscribers, but must
be incurred regardless of the subscriber base. In addition, Star Stream compensates telecommunication companies for bandwidth so that Star Stream customers receive fast streaming services.
vii
viii
Preface
▪▪ At the end of each chapter, Let’s Review is a new chapter summary and self-assessment feature
that is designed to help busy students prepare for an exam. It includes a summary of each
learning objective’s key points, key terms, multiple-choice questions, exercises, and a sample
problem that students may use to practice.
▪▪ Sample multiple-choice questions allow students to practice with the type of assessments they
are likely to see on an exam.
▪▪ Short exercises and a longer problem allow students to apply their knowledge.
▪▪ Answers provided at the end of the Let’s Review section let students check their knowledge
immediately.
▪▪ Take It Further in the end-of-chapter activities allows instructors to assign other special activities related to ethics, communication, and teamwork.
▪▪ NEW! Certified Management Accountant (CMA®) Examination Questions help students
­prepare for the CMA exam so they can earn CMA certification.
CengageNOWv2
CengageNOWv2 is a powerful course management and online homework resource that provides
control and customization to optimize the student learning experience. Included are many proven
resources, such as algorithmic activities, a test bank, course management tools, reporting and
assessment options, and much more.
NEW! Excel Online
Cengage and Microsoft have partnered in CNOWv2 to provide students with a uniform, authentic
Excel experience. It provides instant feedback, built-in video tips, and easily accessible spreadsheet
work. These features allow you to spend more time teaching college accounting applications and
less time troubleshooting Excel.
These new algorithmic activities offer pre-populated data directly in Microsoft Excel Online. Each
student receives his or her own version of the problem to perform the necessary data calculations
in Excel Online. Their work is constantly saved in Cengage cloud storage as a part of homework
assignments in CNOWv2. It’s easily retrievable so students can review their answers without cumbersome file management and numerous downloads/uploads.
Motivation: Set Expectations and Prepare Students
for the Course
CengageNOWv2 helps motivate students and get them ready to learn by reshaping their misconceptions about the introductory accounting course and providing a powerful tool to engage students.
CengageNOWv2 Start-Up Center
Students are often surprised by the amount of time they need to spend outside of class working
through homework assignments in order to succeed. The CengageNOWv2 Start-Up Center will help
students identify what they need to do and where they need to focus in order to be successful
with a variety of new resources.
▪▪ What Is Accounting? Module ensures students understand course expectations and how to be
successful in the introductory accounting course. This module consists of two assignable videos: Introduction to Accounting and Success Strategies. The Student Advice Videos offer advice
from real students about what it takes to do well in the course.
▪▪ Math Review Module, designed to help students get up to speed with necessary math skills,
includes math review assignments and Show Me How math review videos to ensure that students have an understanding of basic math skills.
▪▪ How to Use CengageNOWv2 Module focuses on learning accounting, not on a particular software system. Quickly familiarize your students with CengageNOWv2 and direct them to all of
its built-in student resources.
Preface
Motiv…

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