Quiz study guideINTRODUCTION

Every day, managers make decisions that use managerial accounting information. The day-to-day operational decisions, such as assessing an optimal price point for a product, determining an appropriate sales mix, or deciding if the company should make a component part or buy it from a supplier, all use managerial accounting information. Performance evaluation, whether of an individual employee, a division, or a line of business, is much more effective when supplemented by reports from the managerial accounting system. Strategic planning decisions, such as whether a company should lease or buy a factory or a piece of equipment, or whether a company should diversify into a new line of business, cannot be made without the input of the management accountant. Managerial accounting allows for financial and nonfinancial data to be combined and analyzed in a way that is useful for decision making at all levels of business.

Comparison of Financial and Managerial Accounting

Accounting can be divided into two major disciplines: financial accounting andmanagerial accounting. Financial accounting focuses on reporting for external purposes, while managerial accounting focuses on reporting for internal decision making. Managerial accounting is the "field of accounting that provides economic and financial information for managers and other internal users" (Kimmel, Weygandt, & Kieso, 2009, p. 721). The role of the managerial accountant is to provide information for strategic decision making in an organization.

There are many differences between financial and managerial accounting. Kimmel, Weygandt, and Kieso (2009) identify five areas that distinguish financial and managerial accounting: the primary users of reports, the types and frequency of reports, the purpose of reports, the content of reports, and the verification process. The first distinct difference is the target audience of the financial reports produced by financial and managerial accountants. Financial accounting is concerned with providing information to external users of financial information such as stockholders and creditors; in contrast, managerial accounting is concerned with providing information to managers that direct and control  the organization's operations (Garrison, Noreen, & Brewer, 2008). Financial accountants identify, measure, and communicate economic information about an entity to interested parties, and managerial accountants take that information, as well as nonfinancial data, and analyze it for the purpose of making decisions within the organization.  

The specific types of reports that are required for financial accounting purposes are financial statements, which are prepared on a regular, periodic basis, such as annually, quarterly, or monthly. Managerial accounting produces reports prepared by managerial accountants on an as-needed basis that are particular to individual decisions or the needs of a specific company. Because managerial accounting reports are for internal use only, they do not need to be comparable to those of other companies, as with financial accounting. The purpose of the financial statements is to report on the financial performance and position of the company for investment, credit, or other decisions, whereas the reports generated by the managerial accountant will have a specific purpose or may be to support a particular decision that is to be made.

The content of the reports produced by the financial accountant and the management accountant can be very different. Financial accounting information and the financial statements are standardized, prepared in accordance with Generally Accepted Accounting Principles, only include financial data, and tend to be summarized for the entity as a whole. In contrast, managerial accounting information may contain both financial and nonfinancial data, is extremely detailed, may pertain to smaller business units rather than the entity as a whole, and will follow whatever standards

makes the reporting relevant to the company and its decision-making process. Financial accounting information can be verified by a financial statement audit that is conducted by an independent Certified Public Accounting (CPA) firm, whereas there is no requirement for verification of managerial accounting information.

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Professional Ethics and the Business Environment

Everyone employed in the financial arena is obligated to conduct themselves in a manner consistent with the highest ethical standards, particularly accountants responsible for the preparation of financial statements that are used by many, both internally and externally, to make decisions. Although the managerial accountant is not directly responsible for financial reports that are typically shared with the public, the corporate scandals that led to the enactment of the Sarbanes-Oxley Act of 2002 (SOX) have affected the accounting profession so pervasively that it has become increasingly important for all accounting and financial professionals, including the management accountant, to uphold the highest ethical standards possible.

In the early 2000s, several publicly traded companies were caught in various scandals that included financial statement manipulation, embezzlement of corporate funds, improper accounting treatment of transactions, and shredding audit evidence in conjunction with federal investigations. Enron, WorldCom, Tyco, and Adelphia were among the publicly traded companies prosecuted by the Securities Exchange Commission in 2001 and 2002; public accounting firm Arthur Andersen was prosecuted in conjunction with the Enron allegations. Since these scandals affected such a large number of investors and were so widely publicized, the government and the accounting profession felt the need to respond to the public concern about financial integrity; therefore, Congress enacted SOX. One of the ways that SOX has impacted the management accountant is through requiring increased focus on the internal control structure of the corporation.

Ethical conduct is a primary objective of the entire accounting profession. In fact, before becoming a CPA, all applicants are required to pass a comprehensive ethics examination and to conform to the Code of Professional Conduct. Likewise, Certified Management Accountants are governed by the Institute of Management Accountants (IMA) and are subject to the IMA's Statement of Ethical Professional Practice.

The IMA is an international organization for managerial accounting and finance professionals. The IMA's Statement of Ethical Professional Practice outlines the profession's commitment to the principles of honesty, fairness, objectivity, and responsibility, and requires all members to maintain standards of competence, confidentiality, integrity, and credibility (Institute of Management Accountants, n.d.). The IMA's Statement of Ethical Professional Practice is further detailed on their Web site, as provided in this week's Overview document.

CONCLUSION

Managerial accounting has evolved as a discipline that continues to become increasingly important within companies. Managerial accounting facilitates managers in making better decisions by providing the basic information required for major decisions, such as analyzing capital expenditures or merger and acquisition opportunities, as well as day-to-day analyses of whether a company is meeting goals and operating within budget. Regardless of the type of business, all entities can benefit from having access to managerial accounting information.

Chapter 1

Chapter 1: Managerial Accounting and the Business Environment.This chapter describes the larger business environment within which management accounting operates. It is divided into nine sections:(1) globalization, (2) strategy, (3) organizational structure, (4) process management, (5) the importance of ethics in business, (6) corporate governance, (7) enterprise risk, management, (8) corporate social responsibility, and (9) the Certified Management Accountant.

The data reveal an enormous increase in import activity from 1995 to 2007. In particular, imports from Canada, Mexico, and China skyrocketed.

The data reveal an increase in exports to Canada and Mexico. Interestingly, the increase in exports to China pales in comparison to the growth rate in imports from China.

The Internet fuels globalization by providing companies with greater access to geographically dispersed customers, employees, and suppliers.While the number of internet users continues to grow, as of 2008, more than 78 % of the world's population was still not connected to the Internet. This suggests the Internet's impact on business has yet to fully develop.

A strategy is a "game plan" that enables a company to attract customers by distinguishing itself from competitors.

Companies that adopt a customer intimacy strategy strive to understand and respond to individual customer needs better than competitors. Examples of companies that pursue this strategy include: Ritz-Carlton, Nordstrom, and Starbucks.

Part II.Companies that adopt an operational excellence strategy strive to deliver products and services faster, more conveniently, and at a lower price than competitors. Examples of companies that pursue this strategy include: Southwest Airlines, Wal-Mart, and The Vanguard Group.

Part III.Companies that adopt a product leadership strategy strive to offer higher quality products than competitors. Examples of companies that pursue this strategy include: BMW, Cisco Systems, and W.L. Gore.

Decentralization is the delegation of decision-making authority throughout an organization by giving managers the authority to make decisions relating to their area of responsibility.

An organization chart shows how responsibility is divided among managers and it shows formal lines of reporting and communication.

An organization chart also shows line and staff positions in an organization. A person in a line position is directly involved in achieving the basic objectives of the organization. A person in a staff position is indirectly involved in achieving those basic objectives. Staff positions support line positions, but they do not have direct authority over line positions.

The Chief Financial Officer (CFO) is the member of the top management team who is responsible for providing timely and relevant data to support planning and controlling activities and for preparing financial statements for external users.

The correct answer for each question is indicated by a  .Top of Form

1 INCORRECT In an organizational chart, what do the boxes represent?

A) Line positions.

B) Staff positions.

C) Areas of management responsibility.

D) Informal relationships.

Feedback:The correct answer is C (Learning Objective 1):In an organizational chart, the boxes represent areas of management responsibility.

2 CORRECTThe manager of the accounting department is known as the:

A) Chief Financial Officer (CFO).

B) Controller.

C) Accounting department manager.

D) Chief Executive Officer (CEO).

Feedback:The correct answer is B (Learning Objective 2):The manager of the accounting department is known as the controller.

3 INCORRECT Since the early 1980's, companies have gone through several waves of

improvement programs. All of the following represent improvement programs except:

A) Just-in-time (JIT).

B) Total Quality Management (TQM).

C) Process Reengineering.

D) Control Theory (CT).

Feedback:The correct answer is D (Learning Objective 2):Since the early 1980's, companies have gone through several waves of improvement programs, including Just-in-time (JIT), Total Quality Management (TQM), and Process Reengineering. Control Theory (TC) does not represent an improvement program.

4 INCORRECT The just in-time (JIT) production facet of the lean thinking model would likely

have the most profound effects on the operations of companies that maintain:

A) raw materials, work in process, and finished goods inventories.

B) raw materials and work in process inventories.

C) raw materials and finished goods inventories.

D) work in process and finished goods inventories.

Feedback:The correct answer is A (Learning Objective 2):The JIT approach has the most profound effects on the operations of manufacturing companies that maintain all three classes of inventories: raw materials, work in process, and finished goods.

5 INCORRECT Which of the following is true of just-in-time (JIT) production systems?

A) Raw materials are received just in time to go into production.

B) Marketing is scheduled just in time to generate customer orders.

C) The flow of goods is controlled by a push approach.

D)JIT approaches can be contrasted with conventional approaches which advocate a pull approach.

Feedback:The correct answer is A (Learning Objective 2):Ideally, raw materials are received just in time to go into production when a JIT system is in place.

6 INCORRECT Which of the following is a procedure inherent in the Theory of Constraints?

A) Identify the strongest link.

B)Do not place a greater strain on the system that the strongest link can handle.

C) Concentrate improvement efforts on strengthening the strongest link.

D) Improvement efforts must be focused on the constraint.

Feedback:The correct answer is D (Learning Objective 2):Procedures inherent in the Theory of Constraints include, but are not limited to the following: identify the weakest (rather than the strongest) link, do not place a greater strain on the system that the weakest link (rather than the strongest link) can handle, and concentrate improvement efforts on

strengthening the weakest (rather than the strongest) link. As such, answers A, B, and C are incorrect. To be effective, improvement efforts must be focused on the constraint, as stated in answer D.

7 INCORRECT The process improvement method that relies on customer feedback and fact-

based data gathering and analysis techniques to drive process improvement is known as:

A) just-in-time production.

B) lean thinking model.

C) Six Sigma.

D) Theory of Constraints

Feedback:The correct answer is C (Learning Objective 2):Six Sigma is a process improvement method that relies on customer feedback and fact-based data gathering and analysis techniques to drive process improvement

8 INCORRECT The IMA's Statement of Ethical Professional Practice includes which of the

following broad categories?

A) Competence.

B) Confidentiality.

C) Integrity.

D) All of the above.

Feedback:The correct answer is D (Learning Objective 3):The IMA's Statement of Ethical Professional Practice includes all of the following broad categories: competence, confidentiality, and integrity.

9 INCORRECT Which of the following statements about the Sarbanes-Oxley Act of 2002 is not

correct?

A)The Act requires the CFO and the Controller certify in writing that their company's financial statements and accompanying disclosures fairly represent the results of operations.

B)The Act requires that a company's annual report contain an internal control report.

C)The Act establishes severe penalties of as many as 20 years in prison for altering or destroying any documents that may eventually be used in an official proceeding and as many as 10 years in prison for managers who retaliate against a whistle-blower who goes outside the chain of command to report misconduct.

D)The Act places the power to hire, compensate, and terminate the public accounting firm that audits a company's financial reports in the hands of the audit committee.

Feedback:The correct answer is A (Learning Objective 3):

The Sarbanes-Oxley Act of 2002 requires that the CEO and CFO (rather than the CFO and the Controller) certify in writing that their company's financial statements and accompanying disclosures fairly represent the results of operations.

10 INCORRECT Which of the following statements about corporate social responsibility (CSR) is

not correct?

A)CSR is a concept whereby organizations consider the needs of all stakeholders when making decisions.

B) CSR extends beyond legal compliance.

C)CSR includes voluntary actions that satisfy the expectations of customers, employees, suppliers, communities, and environmental and human rights advocates.

D) All of the above statements are correct.

Feedback:The correct answer is D (Learning Objective 3):All of the above statements are correct.

Garrison 13e Practice Exam – Chapter 1

Print these pages. Answer each of the following questions, explaining your answers or showing your work, as appropriate, and then compare your solutions to those provided at the end of the practice exam.

1. Match each of the following terms with its definition.

ConstraintCorporate governanceDecentralizationEnterprise risk managementLean thinking model

a. ______________________ The system by which a company is directed and controlled; if properly implemented, it should provide incentives for top management to pursue objectives that are in the interests of the company and effectively monitor performance.

b. ______________________ Anything that prevents an organization or individual from getting more of what it wants.

c. ______________________ A five-step management approach that organizes resources around the flow of business processes.

d. ______________________ A process used by a company to help identify the risks that it faces and to develop responses to those risks that enable the company to be reasonably assured of meeting its goals.

e. ______________________ The delegation of decision-making authority throughout an organization by providing managers with the authority to make decisions relating to their area of responsibility.

2. Indicate beside each statement below whether it is True (T) or False (F):_____ a. Informal as well as formal relationships within an organization are usually depicted

on an organization chart._____ b. If an organization delegates decision making authority throughout the organization,

it is said to be a centralized organization._____ c. Persons who directly make decisions are said to have line positions, while persons

indirectly providing support toward the organization’s objectives are in staff positions.

_____ d. In today’s organizations, the CFO (Chief Financial Officer) is often a key person in top management whose role is considered critical in providing accounting and financial leadership and information for the organization.

_____ e. The CFO may have both the accounting (controller) and the treasury/cash functions reporting to him or her.

3. For each of the following, indicate whether the description most closely relates to the concepts of Lean Thinking Model (LTM), Six Sigma (SS), or the Theory of Constraints (TOC):

(LTM) (SS) (TOC)A method one might describe as

often trying to improve (rather than remove) “the weakest link”

Common framework is known as DMAIC, which stands for Define, Measure, Analyze, Improve, and Control

Five-step management approach that organizes resources around the flow of business processes

Management approach that emphasizes the importance of managing constraints

Management of “bottlenecks” which might delay or stop progress

Minimizes inventoriesPulls units through the business

processes in response to customer orders

Process improvement method that relies on customer feedback and fact-based data gathering and analysis techniques to drive process improvement

Strives to continuously pursue perfection in the business process

4. Indicate beside each statement below whether it is True (T) or False (F):_____ a. It isn’t really important that accountants behave ethically since what they do will

always be specifically bound by accounting rules such as GAAP._____ b.Many accounting professional organizations, such as the IMA and the AICPA have

standards of ethical behavior their members should follow._____ c. Being ethical and making ethical choices is part of the integrity of a person’s

character, which can be very important to CEOs hiring CFOs._____ d. The IMA Code of Conduct consists of two major parts: general ethical guidelines

and specific guidance for unethical situations.

GNB 13e Practice Exam Solutions – Chapter 1

1. Solution (Learning Objectives 1 and 2):a. Corporate governanceb. Constraintc. Lean thinking modeld. Enterprise risk managemente. Decentralization

2. Solution (Learning Objective 1):a. False; formal relationships only are typically included.b. False; delegation of authority would be considered a decentralized organization.c. Trued. Truee. True

3. Solution (Learning Objective 2):

(LTM) (SS) (TOC)A method one might describe as

often trying to improve (rather than remove) “the weakest link”

X

Common framework is known as DMAIC, which stands for Define, Measure, Analyze, Improve, and Control

X

Five-step management approach that organizes resources around the flow of business processes

X

Management approach that emphasizes the importance of managing constraints

X

Management of “bottlenecks” which might delay or stop progress

X

Minimizes inventories XPulls units through the business

processes in response to customer orders

X

3. Solution, continued

(LTM) (SS) (TOC)Process improvement method that

relies on customer feedback and fact-based data gathering and analysis techniques to drive process improvement

X

Strives to continuously pursue perfection in the business process

X

4. Solution (Learning Objective 3):a. False; accountants are often faced with pressure to ignore or otherwise “bend” the rules

and must decide proactively to be ethical in such situations as well as in situations where clear-cut “rules” do not exist and judgment must be exercised heavily.

b. Truec. Trued. True

----------------------------------------------------

CHAPTER 2

The correct answer for each question is indicated by a  .Top of Form

1 INCORRECT

Which major activities do managers carry out?

A)Planning.

B)Directing and motivating.

C)Controlling.

D)All of the above.

Feedback:The correct answer is D (Learning Objective 1):The major activities of managers include planning, directing and motivating, and controlling.

2

INCORRECT

Which one of the following costs would not be considered an indirect cost of serving a particular customer at a delicatessen?

A)The salary of the manager.

B)The cost of the tables and chairs used to furnish the restaurant.

C)The cost of the bread used to make the sub sandwich that is ordered.

D)The cost of lighting and heating the restaurant.

Feedback:The correct answer is C (Learning Objective 1):In this situation, the costs listed must be identified as either direct or indirect. A direct cost is a cost that can be easily and conveniently traced to the particular cost object under consideration (that is the cost of serving a customer at a delicatessen). Indirect costs cannot be physically traced to the creation of products or can be traced only at great cost and inconvenience. (This question asks you to identify the cost that would not be considered an indirect cost; in other words, you must identify the direct cost that is listed to correctly answer the question.) 

The cost of the franchise manager (answer A), the cost of the tables and chairs (answer B) and the cost of the lighting and heating (answer D) would all be considered indirect costs. On the other hand, the cost of the bread used (C, the correct answer) could be easily and conveniently traced to the cost object (i.e., the cost of serving a particular customer at a delicatessen) and would be a relatively significant in terms of the cost of the sub sandwich. As such, the cost of the bread used would most likely be considered a direct cost.

3 INCORRECT

Usually, the wages of the janitorial staff in a factory would:

A)not be considered as indirect labor but would be included in manufacturing overhead.

B)be classified as indirect labor but would not be included in manufacturing overhead.

C)be classified as indirect labor and included in manufacturing overhead.

D)not be classified as indirect labor and not be included in manufacturing overhead.

Feedback:The correct answer is C (Learning Objective 1):The wages of materials handling personnel cannot be physically traced to the creation of products or can be traced only at great cost and inconvenience. Labor costs that cannot be physically traced to the creation of products, or that can be traced only at great cost and inconvenience, are referred to as indirect labor and treated as part of manufacturing overhead.

4 CORRECT If the cost of goods manufactured is greater than the cost of goods sold, then:

A)work in process inventory has decreased during the period.

B)finished goods inventory has increased during the period.

C)total manufacturing costs must be greater than cost of goods manufactured.

D)finished goods inventory has decreased during the period.

Feedback:The correct answer is B (Learning Objective 4):The cost of goods sold for a manufacturing company is determined as follows: Cost of goods sold = Beginning finished goods inventory + Cost of goods manufactured – Ending finished goods inventory. If the cost of goods manufactured is greater than the cost of goods sold (as stated in the question), then the ending finished goods inventory (which is subtracted) must be greater than the beginning finished goods inventory (which is added); as such, the finished goods inventory must have increased during the period.

5 INCORRECT

The following data (in thousands of dollars) have been taken from the accounting records of Fairbanks Corporation for the just completed year.

The cost of the raw materials used in production during the year (in thousands of dollars) was:

A)$360.

B)$600.

C)$640.

D)$760.

Feedback:The correct answer is A (Learning Objective 5):The cost of the raw materials used in production during the year is determined as follows:

6 CORRECT The following data (in thousands of dollars) have been taken from the accounting

records of Fairbanks Corporation for the just completed year.

The cost of goods manufactured (finished) for the year (in thousands of dollars) was:

A)$2,000.

B)$2,080.

C)$2,160.

D)$2,360.

Feedback:The correct answer is C (Learning Objective 5):The cost of goods manufactured (finished) during the year is determined as follows:

7 INCORRECT

The following data (in thousands of dollars) have been taken from the accounting records of Fairbanks Corporation for the just completed year.

The cost of goods sold for the year (in thousands of dollars) was:

A)$2,000.

B)$2,320.

C)$2,640.

D)$2,800.

Feedback:The correct answer is A (Learning Objective 4):The cost of goods sold for the year is determined as follows:

8 INCORRECT

The following data (in thousands of dollars) have been taken from the accounting records of Fairbanks Corporation for the just completed year.

The net income for the year (in thousands of dollars) was:

A)$600.

B)$800.

C)$1,000.

D)$1,960.

Feedback:The correct answer is B (Learning Objective 4):The net income for the year is determined as follows:

9 INCORRECT

Within the relevant range:

A)both total variable costs and total fixed costs will remain constant.

B)both total variable costs and total fixed costs fluctuate.

C)fixed costs per unit will remain constant and variable costs per unit will fluctuate.

D)variable costs per unit will remain constant and fixed costs per unit will fluctuate.

Feedback:The correct answer is D (Learning Objective 6):The relevant range is the range of activity within which the assumptions about variable and fixed costs are valid. Within the relevant range, the following assumptions are made about variable and fixed costs. A variable cost is a cost that varies, in total, in direct proportion to changes in the level of activity; as such, a variable cost is constant when expressed on a per unit basis. A fixed cost is a cost that remains constant, in total, regardless of changes in the level of activity; as such, when expressed on a per unit basis, a fixed cost per unit increases and decreases inversely with changes in activity.

10 CORRECT An opportunity cost is:

A)the difference between the total cost of one alternative and the total cost of another alternative.

B)the benefit forgone when one alternative is selected rather than another.

C)a cost that is saved by not adopting a given alternative.

D)a cost that continues to be incurred even when there is no activity.

Feedback:The correct answer is B (Learning Objective 8):An opportunity cost is the potential benefit that is given up when one alternative is selected over another.

Garrison 13e Practice Exam – Chapter 2

Print these pages. Answer each of the following questions, explaining your answers or showing your work, as appropriate, and then compare your solutions to those provided at the end of the practice exam.

1. For each of the following, indicate whether the description more closely relates to managerial accounting or financial accounting:

Managerial Accounting

Financial Accounting

Focuses on external uses of informationIs typically bound by the requirements of

GAAP

Is generally more detailed information produced frequently

Typically focuses on segments of the organization

Often uses estimation in order to meet needs for timeliness

Focuses on the historical performance of the company

GAAP not mandatoryOriented toward future decision makingOften mandatory informationPrepared primarily for internal users

2. For each of the following, indicate whether the cost would typically be variable or fixed.

Variable FixedDirect materialsDirect laborRent on buildingSupervisor salariesSales commissions based on units sold

3. For each of the following, indicate whether the cost would typically be considered direct or indirect cost for the cost object given.

Direct IndirectThe direct labor factory costs for the

manufacturing division.The factory supervisor’s salary for the

product produced.The factory supervisor’s salary for the

manufacturing division.The manufacturing overhead costs for the

products produced. The manufacturing overhead costs for the

manufacturing division.

4. The following data (in thousands of dollars) have been taken from the accounting records of Hancock Corporation for the current year.

Sales $1,980Selling expenses 280Manufacturing overhead 460Direct labor 400Administrative expenses 300Purchases of raw materials 240Finished goods inventory, beginning 240Finished goods inventory, ending 320Raw materials inventory, beginning 80Raw materials inventory, ending 140Work in process inventory, beginning 140Work in process inventory, ending 100

Part (a) What was the cost of the raw materials used in production during the year (in thousands of dollars)?

Part (b) What was the cost of goods manufactured (finished) for the year (in thousands of dollars)?

Part (c) What was the cost of goods sold for the year (in thousands of dollars)?

Part (d) What was the net income for the year (in thousands of dollars)?

GNB 13e Practice Exam Solutions – Chapter 2

1. Solution (Learning Objective 1):Managerial Accounting

Financial Accounting

Focuses on external uses of information XIs typically bound by the requirements of

GAAPX

Is generally more detailed information produced frequently

X

Typically focuses on segments of the organization

X

Often uses estimation in order to meet needs for timeliness

X

Focuses on the historical performance of the company

X

GAAP not mandatory XOriented toward future decision making XOften mandatory information XPrepared primarily for internal users X

2. Solution (Learning Objective 6):Variable Fixed

Direct labor XDirect materials XRent on building XSupervisor salaries XSales commissions based on units sold X

3. Solution (Learning Objective 7):Direct Indirect

The direct labor factory costs for the manufacturing division.

X

The factory supervisor’s salary for the product produced.

X

The factory supervisor’s salary for the manufacturing division.

X(See note below)

The manufacturing overhead costs for the products produced.

X

The manufacturing overhead costs for the manufacturing division.

X(See note below)

Note: These costs are direct because they can be traced to the manufacturing division, which is the cost object.

4. Part (a) Solution (Learning Objective 5):The cost of the raw materials used in production during the year is determined as follows:

Raw materials inventory, beginning $ 80Purchases of raw materials 240Less raw materials inventory, ending (140)Raw materials used in production $180

Part (b) Solution (Learning Objective 5):The cost of goods manufactured (finished) during the year is determined as follows:

Raw materials used in production $ 180Direct labor 400Manufacturing overhead 460Total manufacturing costs 1,040Work in process inventory, beginning 140

1,180Less: work in process inventory, ending (100)Cost of goods manufactured $1,080

Part (c) Solution (Learning Objective 4):The cost of goods sold for the year is determined as follows:

Finished goods inventory, beginning $ 240Cost of goods manufactured 1,080Less finished goods inventory, ending (320)Cost of goods sold $1,000

Part (d) Solution (Learning Objective 4):The net income for the year is determined as follows:

Sales $1,980Cost of goods sold 1,000Gross profit 980Operating expenses: Administrative expenses $300 Selling expenses 280 (580)Net income $ 400