Bus.313: Managerial Accounting
Dr. Ahiarah
Group No.___________________________
GROUP ASSIGNMENT #1 BASED ON ETO TEXT, Chapter 1
Due Date:_February 4, 2016__
If group HW is submitted when due, then it will be graded for the full point value indicated for each part; if submitted
after the due date but before the comprehensive exam on the associated chapter, it will be graded for no more than 2
points possible for each part. Any group HW submitted after the comprehensive exam. on associated chapter will not
be graded. (EACH GROUP MEMBER IS REMINDED TO KEEP A COPY OF THIS FIRST PAGE WITH INSTRUCTOR’S MARK ON
IT FOR LATER ATTACHMENT TO THE PORTFOLIO SUMMARY AT THE END OF THE SEMESTER! Thanks)
Using an instrument in the pattern of, or editing, Exhibit 1 below, STATE THE NAME OF EACH OF YOUR GROUP
MEMBERS, rate each of your group member's contribution to the performance of the group in this particular homework
on a scale of 0 (zero) to 100 percent. You may also rate yourself. Please submit this instrument when the group
homework is submitted. (The group should submit only one (group) solution which must include, at least, p.1 (this
page), p.5, and the completed form provided at the end)
Exhibit 1
Group #__
Abel C
Braden T
Cotton G
Denta P
Grp.HW #_
Contr. %
Contr. %
Contr. %
Contr. %
Note: Highly valued attributes associated with accounting functionaries include: carefulness in listening and reading, attention to
minute detail that others might ignore, meticulousness in recording facts (if for no other reason, to avoid being charged with
falsification or fraud, which is illegal) and intelligibility based on which some people might infer a certain degree of mastery.
These attributes contribute to the unique trust that the certified accounting professionals enjoy. The group HW assignments are
part of the design to transmit/impart, or at least, expose you to managerial accounting knowledge/skills or said valued attributes.
We are also trying to influence your ‘following a presentation’, ‘reviewing highlighted lesson’, conceptual, comprehension,
computational, and problem solving skills and abilities. We would like you to figure out or apply presented managerial
accounting models, processes and techniques addressed. You expect the instructor to—and the instructor will, actually—closely
review/grade your responses to this assignment. Responses with errors exceeding one (either from inability to get the ball into all the
specified “holes,” or from “bogeys”) will not earn full points. Beyond the score, what we can be sure of is that, all design
notwithstanding, your take-away from these assignments will be equal to how much or what you put into them—i.e. that you will reap
what you sow!
Part I. (4 points max.) GUIDING INSTRUCTIONS: Please supply the missing words for each enumerated blank space
by copying verbatim from the narrated “Self-Study Review Problem” for Chapter 1. To facilitate the grading, you
must respond to Part I in the separate form provided. Only responses submitted in that form will be graded.
(Note: The publishers may not have adequately updated and synchronized the upper slide visuals and the lower section that
tracks the audio. The missing words are, however, from the audio narrative. If the audio narrative as transcribed below (with
certain words intentionally omitted in the enumerated blanks inserted by the instructor), does not track the actual audio at
the site, please, inform the instructor immediately! Thanks!)
Welcome to Tuscan Manufacturing! This self-study problem introduces you to several cost accounting concepts. It
shows (1) ___________________________ within a (2) ____________________ system. In addition, it shows the effect
of transactions on the required financial statements.
Tuscan Manufacturing Company makes a unique headset for use with mobile phones. During 2003, its first year of
operations, Tuscan experienced the following accounting events. Other than the adjusting entries for depreciation,
assume that all transactions are cash transactions.
Just a couple of quick reminders here, (3) _______________ simply a business event that must be recorded in the
books. An adjusting entry is an entry that updates account balances prior to preparing financial statements.
Show (4) _________________________, income statement, and statement of cash flows by recording them in a
horizontal financial statements model. The (5) _________________________ assists us in understanding a
transaction’s effect on the formal financial statements. We will show these effects using positive amounts for increases,
and negative amounts for decreases. We will be able to see the effects of transactions on the balance sheet, income
statement and the statements of cash flows using this simple tool.
You can easily read a transaction using the horizontal model. For example, the above entry tells me that both cash and
owner’s equity increased. I look further, and I see that the increase in retained earnings was due to a revenue that was
earned. Another thing, the statement of cash flows tells me this was from operating activities. So, I know that they
earned the revenue from what they do in their day-to-day business. Of course, you know that assets equal liabilities
plus the owner’s equity, but, to simplify things, this problem eliminates the liability complication. So we’ll just use assets
equals equity for this problem. Don’t forget that (6) _____________________________________________.
(Transaction #1): This transaction should be familiar to you from your financial accounting class. The (7) _________
from the company’s point-of-view, and (8) _______________________________. Don’t forget the rule from financial
accounting! When we are finished with an entry, we want to make sure that both sides of the balance sheet are the
same! This transaction has no effect on the Income Statement. The owner financed the company, so we do have an
increase in cash flows from financing activities. The owner is (9) ____________________________ to do business with.
(Transaction #2): In this transaction, we are (10) ___________________________________. We show the decrease in
cash by enclosing the number in parentheses. In addition, retained earnings decreases. Research and development
costs are incurred prior to manufacturing and are called upstream costs. Upstream costs lower, or decrease, retained
earnings because they are expensed. Also notice that when expenses increase, net income decreases, and we have a
$50,000 negative cash flow from our operations.
(Transaction #3): This is (11) __________________ where Tuscan traded the asset cash for the asset materials. The
materials are a part of the inventory. The materials will be used to build the product, and are called a product cost.
There is no effect on net income for this transaction, but, we do have a negative $140,000 cash flow from operations.
(Transaction #4): (12) _________________________________ and become expenses in the period in which they were
incurred. Sometimes sales and administrative costs are called period costs for this reason. Retained Earnings decreases
because of this expense, which also decreases net income. The statement of cash flows shows an $82,200 decrease due
to operating activities. Remember, operating cash flows occur from the day-to-day business of the company.
(Transaction #5): This transaction might surprise you! Since the production of headsets requires people to work on
them, the cost of (13) ________________________________________________________. The production workers
salaries thus become an asset, having no effect on the income statement. Our cash flow for this transaction is a
negative for operations purposes. Do note that although we are paying our production workers in cash, we are not able
to expense these salaries. We will find out how the production wages, and production costs, do become expenses a
little later in the problem.
(Transaction #6): This is an asset exchange transaction where we are (14) ______________________________. The
asset cash decreases and the asset, office furniture, increases. There is no effect on the income statement for this
transaction. Since we are purchasing an asset that will last greater than one period, the negative, cash flow is from
investing activities.
(Transaction #7): The depreciation for the office furniture is calculated the same way we learned in financial accounting
for straight-line. We take the cost of the asset and subtract the salvage value, then divide the result by the number of
years the asset is expected to be useful to the business. In this case, the result is $10,000. Since the depreciation is
related to sales and administrative offices, the depreciation (15) _______________________________, reducing
retained earnings. Although we would normally use an accumulated depreciation account to record the depreciation,
for illustration purposes, we will show accumulated depreciation as a reduction from the cost of the asset directly. The
result that we get is known as book value of the office furniture. Notice that there are no cash flow implications,
because cash was not used in this transaction. Notice that there are no cash flow implications, because cash was not
used in this transaction. Depreciation is an expense that does not consume cash.
(Transaction #8): This is an asset exchange transaction where we are (16) _________________________________.
There is no effect on the income statement for this transaction. Since we are purchasing an asset that will last greater
than a year, the negative cash flow is from investing activities. We’ll need to remember in the next transaction that this
is equipment used to manufacture the headsets.
(Transaction #9): The depreciation for the manufacturing equipment is calculated the same way we learned in financial
accounting for straight-line. Take the cost of the asset and subtract the salvage value, then divide the result by the
number of years the asset is expected to be useful to the business. In this case, the result is $20,000. Depreciation is
the allocation of the equipment cost over the life of the equipment. Remember that we must recover the cost of the
equipment in some manner. This might be another surprise! In financial accounting we used an expense account,
depreciation expense. The manufacturing equipment is needed to build the inventory, so the cost of the (17)_____
_____________________________________and becomes a cost of producing the product. Notice that there are no
statement of cash flow effects for this transaction.
(Transaction #10): Surprised again? The rent and utilities are needed to build the inventory, so again this cost is added
to the inventory account. Notice that there is no income statement effect. Cash flow is a negative $136,000 from
operating activities.
(Transaction #11): Since the products are completed units, the (18) __________________________________. The
storage is not required for us to have a finished product, we could use a Just-In-Time manufacturing system and
eliminate storage altogether. Notice that expenses increase, reducing net income. We also have a negative cash flow
from operating activities.
(Transaction #12): First, we’ll (19) _______________________. We are recording the sale of 18,400 headsets at $38 per
unit. Multiplying the two, we get $699,200 as the total amount of the sale. The sale increases retained earnings,
because it is a revenue, which also increases net income. We also have out first positive cash inflow from operating
activities. Please notice, that this is the first time that we have received cash, even though we spent cash to build the
inventory.
(Transaction #13): In order to have a finished product, we usually need three ingredients: direct material, direct labor
and factory overhead. To calculate an average cost per unit, first, we total up everything that we placed in the inventory
column. The (20) __________________________. So, we divide the total cost by the total units to get a (21)
_____________________________. If you get confused over which number to divide by which, use the word “per” as a
dividing symbol. For example, if I want to calculate cost per unit, I take cost and divide it by units because the word cost
appears before the word “per”, and units appears after the word “per”. I simply place a divisor sign where I hear the
word “per”, then perform the calculation. This works with anything with the word ‘per” in it…miles per gallon (divide
total miles driven by total gallons of gas used); cost per ounce (divide total cost by the total number of ounces in the
product).
This transaction records the expense of the inventory that we sold. The expense account is called cost of goods sold.
The cost per unit is $26, we sold 18,400 units, we multiply the two, and find our total cost of goods sold are $478,400.
When the inventory leaves our building, meaning (22) ___________________________. I like to think of an expense as
an asset that leaves the building. Sort of like Elvis. Notice that the sale increases our expenses, reducing our income.
There are no cash flow consequences to this transaction. The cash flow for the cost of inventory was accounted for in
previous transactions.
Explain why Tuscan’s recognition of cost of goods sold had no impact on cash flow.
The impact on cash flows occurs when Tuscan paid for the various product costs. The cash flow was already recognized
before the product was sold. Although the entry to record the depreciation, transaction 9, did not use cash, cash was
expended when the manufacturing equipment was purchased.
The multi-step income statement distinguishes between product costs and sales & administrative costs. (23)_____
_____________________________________. Net income is calculated by subtracting sales and administrative costs
from the gross margin.
Distinguish between the product costs and the upstream and downstream costs that Tuscan incurred.
(24) ____________________ consists of three ingredients: (25) _______________________________. The cost of
Research and development occurs before product manufacture, is (26) __________________, and is not an inventory
(product) cost. Inventory holding costs occur after the product has been manufactured and is (27) _______________
and is not an inventory (product) cost.
Selling costs usually occur after the product is produced and is a downstream cost. Administrative costs such as
preparing an order or accounting are not related to the production of a finished product. Administrative costs might be
upstream or downstream depending on the situation.
The company president believes that Tuscan could save money by buying the inventory that it currently makes. The
warehouse supervisor said that would not be possible because the purchase price of $27 per unit was above the $26
average cost per unit of making the product. Assuming that the purchased inventory would be available on demand,
explain how the company president could be correct and why the warehouse supervisor could be biased in his
assessment of the option to buy the inventory.
Since the merchandise would be available on demand, Tuscan could operate a just-in-time inventory system and
eliminate the inventory holding expense. It would cost an additional dollar to purchase the units ($27-$26), times
20,000 units, or an additional $20,000, but Tuscan would save $41,000 in inventory holding expenses. The warehouse
person is biased because the warehouse job would be lost if this decision were made. If Tuscan does not have
inventory, they do not need a warehouse supervisor.
Thank you for helping us record and analyze Tuscan Manufacturing! In this self-study exercise, you have (28)____
__________________________________ within a formal accounting system. You have (29)_________________
______________________________________________________. Thanks again, and see you soon!
Part II. (2 points max.) The group should go to the CONNECT-PLUS site and collectively complete, grade and discuss
Ch1FreePrct Assignment. Print and submit your completed and graded work. Evidence of “graded” required here is the
actual SCORE that CONNECT-PLUS reports on each graded work (neither the question’s potential point value, nor a
“correct” check mark suffices for “graded”). If your actual score is not printable, clearly indicate, in writing here (below),
the name of the group member in whose CONNECT-PLUS account this part was completed ON THE DUE DATE indicated
above on page one. If you write somebody’s name here, in place of the printed page(s) requested, the date recorded in
the named person’s CONNECT account, will be used to establish whether or not this Part II was submitted by that person
on time or after the due date indicated above. As stated on page one above, if submitted after the due date but before
the comprehensive exam on the associated chapter, the whole Group HW will be graded for no more than 2 points.
____________________________________ (Name of Group member in whose CONNECT-PLUS account Part II was completed)
NOTE: Unclear, illegible, or unintelligible handwriting on this form will not receive any score! To avoid this problem
(losing points for unreadable handwriting), please, type/word-process your responses on this form—the form will
expand to accommodate your typing. What would be the point if the handwriting is so bad as to not communicate?
Use this form to complete Part I of GROUP ASSIGNMENT #1 BASED ON ETO TEXT, Chapter 1
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