M1 Introduction to Management Accounting Solutions

Practice Problem A

Item

Product or period

Legal fees paid by a corporation

Depreciation on the factory building
Advertising
Wages of a factory storeroom clerk
Wages of a sewing machine operator in
a clothes factory
Lubricating oil for sewing machines
Overtime wages paid to the sewing
machine operators
Corporate-level research and
development costs
Sugar in a chocolate bar
Insurance on a warehouse and its
inventory
Salary of a cleaner in a factory
Depreciation on office equipment (at
corporate headquarters)

Period
Product
Period
Product
Product
Product
Product

Direct materials, direct

labour or overhead.
Overhead
Overhead
Direct labour
Overhead
Overhead

Period
Product
Period

Direct materials

Product
Period

Overhead

Practice Problem B
Smith Ltd
Statement of Cost of Goods Manufactured
for the year ending 31 December 2013
Direct materials:
Beginning inventory
Add: Purchases
Materials available
Less: Ending inventory
Direct materials used
Direct labour
Manufacturing overhead:
Indirect manufacturing labour
Plant electrical expense
Depreciation (equipment & building)
Factory overheads (other)
Factory Supplies
Rates
Total overhead costs
Manufacturing costs added
Add: Beginning work in progress
Total manufacturing costs
Less: Ending work in process
Cost of goods manufactured

$ 60,000
160,000
$220,000
10,000
$210,000
80,000
$ 40,000
10,000
18,000
20,000
12,000
2,000
102,000
$392,000
20,000
$412,000
4,000
$408,000

Smith Ltd
Income Statement
For the Year Ended December 31, 2013
Revenue
Cost of goods sold:
Beginning finished goods inventory
Add: Cost of goods manufactured
Goods available for sale
Less: Ending finished goods inventory
Gross profit
Less: Operating expenses
Marketing & distribution costs
Income before taxes

$700,000
$ 80,000
408,000
$488,000
24,000

180,000

464,000
$ 236,000
180,000
$ 56,000

*Note: Data re: accounts receivable &

accounts payable are not used in this
question