Pablito, Jacquelyn F.

CBEA-01-301P

CHAPTERS 1&2

CHAPTER 1
Exercise 1 (Financial and management accounting)

To David Cruz,
In Financial Accounting, Deals with the financial statements for the basic purpose of providing information for various interested groups
like, creditors, banks, shareholders, financial institution government. It focuses in past orientation. Accounts are based on generally
accepted accounting principles, consumers and business managers, while in Management Accounting, accounting that will provide
information to the business managers to facilitate the day to day operations of the business. Comparison of costs and benefits of proposed
action. It focuses future orientation that help in planning and control, setting standards and in case of variances between planned and
actual performance, helps in deciding the corrective action It means that their primary difference is management accounting focuses
internally while financial accounting focuses externally.

Exercise 3 (Relevant Cost)

a. Cost of the present car - Should, (knowing the price of the old car is important since it allows you to estimate how much the old
car will sell for and how much money you'll need for the new car.
b. Trade-in value of your present car - Should, (knowing the trade-in value of your present vehicle is important because it allows
you to estimate how much the old vehicle will sell for and how much your new vehicle will cost.)
c. Maintenance costs on the present car - Should, (The cost of maintenance for the present automobile is relevant since it is a cost
that will be incurred if no new car is purchased, and must examine what the cost of maintenance will be if we decide not to buy
a new car, and whether it is too expensive to justify buying a new car.)
d. Fuel consumption on the present car - Should , (The existing car's fuel consumption is important since it reveals how much the car will
cost to run and if it will offer enough mileage to justify retaining it or buying a new one.)
e. Fuel consumption on the new car - Should, (The fuel consumption of the new automobile is important because it decides how much
the new car will cost to operate, if it will be better than the present car, and how much and how much money it will save.)
f. Cost of parking permits, garage rental, and similar "storage costs" - Should not, (The cost of parking, permits, and garage rentals
are unimportant because they will be nearly the same and have no impact on whether or not you buy a car.)
g. Liability insurance on the present car- Should, (The present car would be valuable in evaluating the car's running costs, as well as the
responsibility of the current car's insurance, and learning about the new car would help determine the cost that would have to be paid
if the current car was kept or a new car was purchased.)
h. Liability insurance on the new car - Should, (The liability insurance on the new car would be valuable in determining the car's running
costs, just as the liability of the present car's insurance and knowledge of the new car will help in determining the cost that would have
to be paid whether the current car is kept or a new car is purchased.)
i. Property and collision insurance on the present car - Should not , (Since the cost of a new and used car is nearly the same,
property and collusion insurance does not play a role in determining whether or not to acquire one.)
j. Changes in the relative frequency of your friends saying, "Let's use your car since it is newer" and the related costs of using the new car.
- Should not, (Any impact of friends views has no impact on the choice to buy a car.)
CHAPTER 2
Exercise 1 (Schedule of Cost of Goods Manufactures and Sold: Income Statement)

Required:
1. Prepare a schedule of cost of goods manufactured.

Amazing Aluminum Company

Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 20X1

Direct materials
Direct materials inventory, Jan. 1, 20X1 P 60,000
Purchases of direct materials 250,000
Direct materials available for use P 310,000
Direct materials inventory, Dec. 31, 20X1 (70,000)
Direct materials used P 240,000
Direct labor 400,000
Manufacturing overhead
Indirect materials P 10,000
Indirect labor 25,000
Depreciation on plant and equipment 100,000
Utilities 25,000
Other 30,000
Total manufacturing overhead 190,000
Total manufacturing cost P 830,000
Work in process inventory, Jan.1, 20X1 120,000
Total P 950,000
Work in process inventory, Dec. 31, 20X1 (115,000)
Cost of goods manufactured P 835,000

2. Prepare a schedule of cost of goods sold.

Amazing Aluminum Company

Schedule of Cost of Goods Sold
For the Year Ended December 31, 20X1

Beginning finished goods inventory P 150,000

Add: Cost of goods manufactured 835,000
Total available for sale P 985,000
Less: Ending finished goods inventory 165,000
Cost of goods sold P 820,000
3. Prepare an income statement.

Amazing Aluminum Company

Schedule of Cost of Goods Sold
For the Year Ended December 31, 20X1

Sales Revenue P 1,105,000

Less: Cost of goods sold 820,000
Gross margin P 285,000
Less: Selling and administrative expense P 110,000
Income tax expense 70,000 180,000
Net Income P 105,000

Exercise 2
Fixed (F) Period Cost (P)
Variable (V) Product Cost (R)

a. Transportation-in costs on materials purchased V R

b. Assembly-line workers’ wages V R
c. Property taxes on work in process inventories V R
d. Salaries of top executives in the company F P
e. Overtime premium for assembly workers V R
f. Sales commissions V P
g. Sales personnel office rental F P
h. Production supervisory salaries F R
i. Controller’s office supplies F P
j. Executive office heat and air conditioning F P
k. Executive office security personnel F P
l. Supplies used in assembly work V R
m. Factory heat and air conditioning F R
n. Power to operate factory equipment V R
o. Depreciation on furniture for sales staff F P
p. Varnish used for finishing product V R
q. Marketing personnel health insurance F P
r. Packaging materials for finished product V R
s. Salary of the quality control manager who checks work on the assembly line F R
t. Assembly-line workers’ dental insurance F R

Exercise 3 (Cost Classifications; Manufacturer)

Cost classifications:
a. Variable e. Administrative i. Direct material
b. Fixed f. Selling j. Direct labor
c. Period g. Manufacturing k. Manufacturing Overhead
d. Product h. Research and Development
Cost items:
1. Cost of fabric used in T-shirts. ADGI
2. Wages of shirt makers. ADGJ
3. Cost of new sign in front of retail T-shirt shop. BFCH
4. Wages of the employee who repairs the firm's sewing machines. BDGK
5. Cost of electricity used in the sewing department. ADGK
6. Wages of T-shirt designers and painters. ADGJ
7. Wages of sales personnel. BCF
8. Depreciation on sewing machines. BDGK
9. Rent on the building. Part of the building's first floor is used to make and paint T-shirts. KBD
Part of it is used for the retail sales shop. FBC
The second floor is used for administrative officials and EBC
storage of raw material and finished goods. BDK
10. Cost of daily advertisement in local media. BCF
11. Wages of designers who experiment with new fabrics, paints and T-shirt designs. BCDHK
12. Cost of hiring a pilot to fly along the beach pulling a banner advertising the shop. ABCF
13. Salary of the owner's secretary. BCE
14. Cost of repairing the gas furnace. BDK
15. Cost of insurance for the production employees. BDGK

Exercise 4 (Economic Characteristics of Costs)

Marginal Cost 1. The cost of including one extra child in a day-care center.
Sunk Cost 2. The cost of merchandise inventory purchased two years ago, which is now obsolete.
Average Cost 3. The cost of feeding 500 children in a public school cafeteria is P800 per day, or P1.60 per
child per day. What economic term describes this P1.60 cost?
Opportunity Cost 4. The management of a high-rise office building uses 2,500 square feet of space in the building for
its own management functions. This space could be rented for P250,000. What economic
term describes this P250,000 in lost rental revenue?
Differential Cost 5. The cost of building an automated assembly line in a factory is P800,000. The cost of building
a manually operated assembly line is P375,000. What economic term is used to describe
the difference between these two amounts.
Out of Pocket Cost 6. Referring to the proceeding question, what economic term is used to describe the P800,000
cost of building the automated assembly line?

Exercise 5 (Cost Classifications; Hotel)

Cost Classifications:
a. Differential cost e.Out-of-pocket cost i. Uncontrollable by the kitches manager.
b. Marginal cost f. Direct cost of the food and beverage department j. Controllable by the hotel general manager
c. Opportunity cost g. Indirect cost of the food and beverage department k. Uncontrollable by the hotel general manager.
d. Sunk cost h. Controllable by the kitchen manager

Cost items: Answer

1. The cost of the food used in the kitchen. E
2. The cost of general advertising by the hotel, which is allocated to the food and beverage department. F
3. The cost of space (depreciation) occupied by a sauna next to the pool. J
The space could have been otherwise for magazine and bookshop. B
4. The discount on room rates given as a special order for a "Labor Day Gateway Special". I
5. The wages earned by table service personnel. ID
6. The salary of the kitchen manager. HD
7. The cost of leasing a computer used for reservations, payroll and general hotel accounting. BC
8. The wages of the hotel's maintenance employees, who spent 11 hours GD
(at 20 pesos per hour) repairing the dishwasher in the kitchen.
9. The difference in the total cost incurred by the hotel when one additional guest is registered. A
10. The cost of space (depreciation) occupied by the kitchen. H
11. The profit that would have been earned in a magazine and bookshop, if the hotel had one. B
12. The cost of the refrigerator purchased 13 months ago. The unit was covered by a warranty C
for 12 months, during which it worked perfectly. It malfunctioned after 13 months, despite an original
estimate that it would last five years.
13. The cost of dishes broken by kitchen employees. C
14. The cost of a pool service that cleans and maintains the hotel's swimming pool. ID