Charles Maxwell is starting a cheesecake bakery, Able Baker Charlie Company, to produce and sell different flavored cheesecakes to restaurants and the general public. He has just begun his study of accounting, and is a bit confused about the many types of reports he has read about and how they will help him run his business. He asks you to help him clarify what the differences between managerial accounting and financial accounting are. Hes also wondering how to set up his inventory, how to classify the costs of his business, and how to fill in some missing information.

Required:

1.

Choose whether the characteristics on the Managerial vs. Financial panel are most often associated with managerial accounting or financial accounting.

2.

Charles has provided some of the costs he expects to incur on the Cost Classification panel. Decide on the classifications that could be applied to each of these costs using the table provided. The cost object in each case is the cheesecake.

3.

Charles found some sample income statements and balance sheets on the Internet, and asked which of them might be most appropriate for a manufacturing business like his. Review income statements A and B on the Income Statements panel, and balance sheets C and D on the Balance Sheets panel. Determine which income statement and balance sheet would be most appropriate for a manufacturing business like Able Baker Charlie. Then, on the Financial Statements panel, denote which income statement and balance sheet would be most appropriate for a manufacturing business.

4.

At the end of February, after the second month of operations of Able Baker Charlie Company, Charles shows you the data hes collected, but he was unable to figure out some of the amounts. On the Costs and Balances panel, determine the missing amounts. Note: It may be helpful to use T accounts to map the flow of the amounts through the manufacturing accounts and solve for the missing dollar values.

Choose whether the characteristics below are most often associated with managerial accounting or financial accounting.

Managerial Accounting

Financial Accounting

Primarily used for internal decision making

Generally Accepted Accounting Principles (GAAP) must be used

Prepared statements usually pertain to the company as a whole rather than individual departments or products

Information provided will often be subjective, such as estimated future results

Often prepared on an as-needed basis rather than at fixed intervals

Charles has provided some of the costs he expects to incur below. Decide on the classifications that could be applied to each of these costs using the table provided. The cost object in each case is the cheesecake.

Cost	Product	Period	Direct	Direct	Factory	Selling	Administrative	Direct	Indirect	Prime	Conversion
	Cost	Cost	Materials	Labor	Overhead	Expense	Expense	Cost	Cost	Cost	Cost
Eggs used to make cheesecakes
Bakers wages
Delivery driver wages
Depreciation of office computers
Power to run the cheesecake ovens
Presidents salary
Sales commissions
Factory supervisor salary

Charles found some sample income statements and balance sheets on the Internet, and asked which of them might be most appropriate for a manufacturing business like his. Review income statements A and B on the Income Statements panel, and balance sheets C and D on the Balance Sheets panel. Determine which income statement and balance sheet would be most appropriate for a manufacturing business like Able Baker Charlie Company.

Which income statement is most appropriate for a manufacturing business?

Income statement A

Income statement B

Which balance sheet is most appropriate for a manufacturing business?

Balance sheet C

Balance sheet D

At the end of February, after the second month of operations of Able Baker Charlie Company, Charles shows you the data hes collected, but he was unable to figure out some of the amounts. Review the data below and fill in the missing amounts on the chart for Able Baker Charlie Company. Note: It may be helpful to use T accounts to map the flow of the amounts through the manufacturing accounts and solve for the missing dollar values. It may also be helpful to review the steps for determining the cost of materials used, total manufacturing cost incurred, and cost of goods manufactured.

Data for February
Decrease in materials inventory	$3,600
Materials inventory on Feb. 28	50% of materials inventory on Jan. 31
Direct materials purchased	$11,700
Direct materials used	3 times the direct labor incurred
Total manufacturing costs incurred in period	$29,400
Total manufacturing costs incurred in period	70% of Cost of Goods Manufactured
Total manufacturing costs incurred in period	$7,000 less than Cost of Goods Sold

Account

Account Balances

Costs Incurred

Jan. 31

Feb. 28

Materials Inventory

Direct Materials Used

Work in Process Inventory

$21,000

Direct Labor Incurred

Finished Goods Inventory

$17,000

Factory Overhead Incurred

Cost of Goods Sold

Income Statement A (scroll down for Income Statement B):

Sample Company A

Income Statement

For the Year Ended December 31, 2016

1	Sales		$42,000.00
2	Beginning finished goods inventory	$5,250.00
3	Plus cost of goods manufactured	6,400.00
4	Cost of finished goods available for sale	$11,650.00
5	Less finished goods inventory	400.00
6	Cost of goods sold		11,250.00
7	Gross profit		$30,750.00
8	Expenses:
9	Wages expense	$5,250.00
10	Rent expense	6,400.00
11	Total expenses		11,650.00
12	Net income		$19,100.00

Income Statement B:

Sample Company B

Income Statement

For the Year Ended December 31, 2016

1

Sales

$42,000.00

2

Beginning merchandise inventory

$5,250.00

3

Plus net purchases

6,400.00

4

Merchandise available for sale

$11,650.00

5

Less ending merchandise inventory

400.00

6

Cost of merchandise sold

11,250.00

7

Gross profit

$30,750.00

8

Expenses:

9

Wages expense

$5,250.00

10

Rent expense

6,400.00

11

Total expenses

11,650.00

12

Net income

$19,100.00

Balance Sheet C (scroll down for Balance Sheet D):

Sample Company C

Balance Sheet

December 31, 2016

1	Assets
2	Cash		$20,800.00
3	Accounts receivable (net)		10,000.00
4	Merchandise inventory		6,000.00
5	Supplies		2,100.00
6	Land		17,000.00
7	Total assets		$55,900.00
8	Liabilities
9	Accounts payable		$17,800.00
10	Stockholders Equity
11	Common stock	$19,000.00
12	Retained earnings	19,100.00
13	Total stockholders equity		38,100.00
14	Total liabilities and stockholders equity		$55,900.00

Balance Sheet D:

Sample Company D

Balance Sheet

December 31, 2016

1

Assets

2

Cash

$20,800.00

3

Accounts receivable (net)

10,000.00

4

Inventories:

5

Finished goods

$2,000.00

6

Work in process

1,500.00

7

Materials

2,500.00

6,000.00

8

Supplies

2,100.00

9

Land

17,000.00

10

Total assets

$55,900.00

11

Liabilities

12

Accounts payable

$17,800.00

13

Stockholders Equity

14

Common stock

$19,000.00

15

Retained earnings

19,100.00

16

Total stockholders equity

38,100.00

17

Total liabilities and stockholders equity

$55,900.00

At the end of February, after the second month of operations of Able Baker Charlie Company, Charles shows you the data hes collected, but he was unable to figure out some of the amounts. Review the data below and fill in the missing amounts on the chart for Able Baker Charlie Company. Note: It may be helpful to use T accounts to map the flow of the amounts through the manufacturing accounts and solve for the missing dollar values. It may also be helpful to review the steps for determining the cost of materials used, total manufacturing cost incurred, and cost of goods manufactured.

Data for February
Decrease in materials inventory	$3,600
Materials inventory on Feb. 28	50% of materials inventory on Jan. 31
Direct materials purchased	$11,700
Direct materials used	3 times the direct labor incurred
Total manufacturing costs incurred in period	$29,400
Total manufacturing costs incurred in period	70% of Cost of Goods Manufactured
Total manufacturing costs incurred in period	$7,000 less than Cost of Goods Sold

Account	Account Balances		Costs Incurred
	Jan. 31	Feb. 28
Materials Inventory			Direct Materials Used
Work in Process Inventory	$21,000		Direct Labor Incurred
Finished Goods Inventory		$17,000	Factory Overhead Incurred
			Cost of Goods Sold