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ACC349 WEEK 1 E1-7 BYP1-7 BE2-3 BE2-6

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·       Ch.1 - E1-7
·       Ch.1 - BYP1-7
·       Ch. 2 - BE2-3
·      Ch. 2 - BE2-6

E1-7 An incomplete cost of goods manufactured schedule is presented below.

Cost of Goods Manufactured Schedule
For the Year Ended December 31, 2005

Work in process (1/1) $210,000
Direct materials
Raw materials inventory (1/1) ?
Add: Raw materials purchases
Total raw materials available for use ?
Less: Raw materials inventory (12/31) 7,500
Direct materials used $190,000
Direct labor ?
Manufacturing overhead
Indirect labor $ 18,000
Factory depreciation 36,000
Factory utilities 68,000
Total overhead 122,000
Total manufacturing costs ?
Total cost of work in process ?
Less: Work in process (12/31) 81,000
Cost of goods manufactured $530,000


Complete the cost of goods manufactured schedule for Madlock Manufacturing Company.

BYP 1-7 Wayne Terrago, controller for Robbin Industries, was reviewing production cost reports for the year. One amount in these reports continued to bother him—advertising.

During the year, the company had instituted an expensive advertising campaign to sell some of its slower-moving products. It was still too early to tell whether the advertising campaign was successful.

There had been much internal debate as how to report advertising cost. The vice
president of finance argued that advertising costs should be reported as a cost of production, just like direct materials and direct labor. He therefore recommended that this cost be identified as manufacturing overhead and reported as part of inventory costs until sold. Others disagreed. Terrago believed that this cost should be reported as an expense of the current period, based on the conservatism principle. 

Others argued that it should be reported as Prepaid Advertising and reported as a current asset. The president finally had to decide the issue. He argued that these costs should be reported as inventory. His arguments were practical ones. He noted that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering. Also, by reporting the advertising costs as inventory rather than as prepaid advertising, less attention would be directed to it by the financial community.


(a) Who are the stakeholders in this situation?

(b) What are the ethical issues involved in this situation?

(c) What would you do if you were Wayne Terrago?

BE2-3 In January, Sandy Tool & Die requisitions raw materials for production as follows:

Job 1 $900, Job 2 $1,200, Job 3 $500, and general factory use $600. Prepare a summary journal entry to record raw materials used.

BE2-6 Burrand Company estimates that annual manufacturing overhead costs will be
$600,000. Estimated annual operating activity bases are: direct labor cost $500,000, direct labor hours 50,000, and machine hours 100,000. Compute the predetermined overhead rate for each activity base.

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