Quiz 16: Management Accounting: a Business Partner
C. Boat Yard's manufacturing costs ($420,000) are the Product costs and these should be shown as working in progress in current assets of balance sheet. This Product costs will not appear on the year-end income statement. Only revenue (or) sales on the boats (finished product) will appear on the year-end income statement.
(a) Identifying the Errors and shortcomings in the Income Statement: Here costs of manufacturing have been incorrectly included in Cost of Goods sold. Cost of Goods Sold = Opening Finished Goods + Goods Available for ( or Cost of Goods Manufactured) - Closing Finished Goods Also indirect Costs and Direct Costs have been clubbed. (ii) A dividend declared on capital stock is not an expense. It will not come under head of cost of goods sold. Dividend declaration on capital stock will not come in the calculation of net income. This will be shown on Retained Earnings Statement. Basing on the following calculations and income statement, I observed that the company's actual net income is higher than the amount shown in the Income statement. (b) Preparing Schedules: (1) Preparing Schedule of Cost of direct materials used: (2) Preparing Schedule of Total Manufacturing Overhead: (c) Preparing the Schedule of Cost of finished goods manufactured: (d) Preparing Income statement using multiple-step income statement: Working Notes: (i) (ii)
(a) Managerial accounting information is intended for use by managers of the business (insiders), whereas financial accounting information is distributed to outsiders as well as to managers. These outsiders include stockbrokers, creditors, potential investors, and the general public. (b) Managerial accounting information is intended to assist managers in planning and controlling both the short-run and long-run activities of the business. Financial accounting information is primarily intended to present the operating results and financial position of the business entity as an aid to resource allocation decisions made by outside investors. Financial accounting information is also used for income tax purposes.
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