Accounting Department

Management Accounting I

GAi

EXERCISE BOOK 1

EXERCISES 1 to 5

School Year 2020/2021

©Management Accounting I 2020/2021, ISCTE-IUL – Daniela Penela

 EXERCISE 1

TOOL is a manufacturing-sector company. Consider the following data for January of a

certain year:
▪ Inventory information:
a) Direct material M:
Description Units Total (€)
Beginning Inventory 5.000 67.500
Purchases 10.000 150.000
Direct materials used 12.000 ?

b) Finished good T:
Description Units Total (€)
Beginning Inventory 1.000 32.500
Production 4.000 160.000
Sales 3.000 150.000

QUESTIONS:

1. Use each inventory system FIFO, LIFO and WEIGHTED AVERAGE COST
METHOD (WAC) to calculate the value of:

a) Cost of direct materials used and ending inventory for direct material M;

b) Cost of goods sold (COGS) and ending inventory for finished good T;

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 EXERCISE 2

Consider the following information concerning OMEGA Company for the month of
March of a certain year:

Description Total (€)

Purchases of Direct materials 3.500units a 110 €/unit

Purchase discounts 2 € /per unit

Transportation costs of purchased items 3.500 €

Wages of assembly-line workers 30.000 €

Wages of plant maintenance and cleaning labor 18.000 €

Purchases of indirect materials 500 liters at 10 €/lt

Materials used by distribution department 7.000 €

Monthly depreciations - Administrative department 35.000 €

Monthly depreciations - Plant 60.000 €

Monthly depreciations - Distribution department 22.400 €

Plant Supplies 20.000 €

Sales commissions 10 €/per sold unit

Salary of administrative department personnel 15.000 €

Salary of distribution department personnel 16.500 €

Sales 870 units at 1.200 €/unit

Plant communication expenses 8.200 €

Deposit accounts 217.500 €

Deposit interests 540 €

Loan interests 2.250 €

Accounts receivables 20.000 €

Ending inventory of work-in-process (WIP)* 3.575 €

* No beginning inventory of WIP

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 1) The company uses LIFO for inventory valuation.
2) Adding to the wages and salaries, the company pays social charges at a standard
rate of 50% of wages/salaries.

3) Inventory information:

Description Total

Beginning inventory of finished goods 150 units at 690 €/unit

Ending inventory of finished goods 80 units

Beginning inventory of indirect materials 150 lts at 12,5 €/lt

Beginning inventory of direct materials 400 units at 100 €/unit

Ending inventory of direct materials 250 units

* Ending inventory of indirect materials is zero.

QUESTIONS:

1. Calculate for the month of March the following values:

a) Manufacturing overhead costs (indirect manufacturing costs);

b) Direct Materials used;
c) Total Manufacturing cost;
d) Cost of goods manufactured (COGM);
e) Cost of goods sold (COGS)
f) Gross Profit;
g) Distribution costs.

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 EXERCISE 3

RODINHAS is a manufacturing-sector company that produces, and markets finished

product R. To obtain this product, the company uses the direct material M1 and M2.

a) Regarding January of a certain year N, the following information is known:

Production Distribution Administrative Total (€)
Department Department
Supplies and external 70.000 25.000 5.000 100.000
services

Wages and Salaries 230.000 65.000 39.000 334.000

Other costs/expenses 3.000 500 1.000 4.500

Depreciation expenses 65.000 8.500 2.000 75.500

Financial expenses 24.000

• Regarding the wages and salaries of production, they are all direct manufacturing
labor costs.
• Adding to the wages and salaries, the company pays social charges at a standard
rate of 60% of wages/salaries in both financial and management accounting scope.

Direct materials inventory information:

Direct material M1 Direct material M2

Beginning
1.000 units at 9 €/unit 300 units at 25 €/unit
Inventory
Purchases 10.000 units at 10 €/unit 1.000 units at 20 €/unit
Direct materials
9.000 units ?
used
Ending Inventory ? 300 units

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 b) Finished goods inventory information:
Finished Good R WIP

Beginning Inventory 2.000 units at 62 €/unit 50.000 €

Production 10.000 unit -

Sales 7.500 units at 95 €/unit -

Ending Inventory ? 15.000 €

c) The company uses FIFO for inventory valuation.

QUESTIONS:

1. Prepare the Income Statement by Nature of Expense and the Income Statement by
Function of Expense for company RODINHAS for January.

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 ATTACHMENTS

Income Statement by Function of Expense

Description Total (€)

Revenues

COGS

Gross Profit

Distribution expenses

Administrative expenses

Operating Income (EBIT)

Financial expenses

Profit before taxes (EBT)

Calculations:

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 ATTACHMENTS

Income Statement by Nature of Expense

Revenues and Expenses Total (€) Calculations

Sales and service revenues

Changes in inventories

Ending inventory of finished goods

Beginning inventory of finished goods

Ending inventory of WIP

Beginning inventory of WIP

Cost of merchandise and raw materials sold and

consumed
Supplies and External Services

Labor and Personnel Expenses

Other operating income

Other operating expenses

Earnings before interests, taxes, depreciation

and amortization (EBITDA)
Depreciation expenses

Earnings before interests and taxes (EBIT)

Financial revenues

Financial expenses

Profit before taxes

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 EXERCISE 4

The company LTC produces and sells only one product. In May/N the company incurred
in the following movements:
▪ Sales: 10.000 units at 12€/unit
▪ Costs by nature and by functions (€):
Description Production Distribution Administrative Financial Total
Supplies and external 2.200 400 650 - 3.250
services
Wages and salaries * 23.040 17.920 17.920 - 58.880
Other operational 1.030 270 600 - 1.900
costs
Monthly depreciation 3.600 2.200 1.100 - 6.900
Financial expenses - - - 1.300 1.300
Total 29.870 20.790 20.270 1.300 72.230
* In the wages and salaries is already included the social charges at a standard rate of
60%. In financial accounting, the standard rate was also applied.

▪ Inventory information:

Description Direct Material Finished product WIP (€)

(units)
Beginning inventory 6.000 ton a 4€/ton 4.500 un a 7,2€/un 3.600
Purchases 4.000 ton a 4,75 €/ton - -
Direct materials 8.000 ton - -
used
Production - 8.000 un -
Sales - 10.000 un a 12€/un -
Ending inventory 2.000 ton 2.500 un 4.870

▪ Indirect materials used in production: 400 €

▪ The company uses LIFO for inventory valuation.

QUESTIONS:
1. Calculate the total COGM and the unit COGM.
2. Prepare the income statement by nature of expense and by function of expense.

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 ATTACHMENTS

Income Statement by Nature of Expense

Revenues and Expenses Total (€) Calculations

Sales and service revenues
Changes in inventories
Ending inventory of finished goods
Beginning inventory of finished goods
Ending inventory of WIP
Beginning inventory of WIP
Cost of merchandise and raw materials sold and
consumed
Supplies and External Services
Labor and Personnel Expenses
Other operating revenues
Other operating expenses
Earnings before interests, taxes, depreciation
and amortization (EBITDA)
Depreciation expenses
Earnings before interests and taxes (EBIT)
Financial revenues
Financial expenses
Profit before taxes

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 ATTACHMENTS

Income Statement by Function of Expense

Description Total (€)

Revenues
COGS
Gross Profit
Distribution expenses
Administrative expenses
Operating Income (EBIT)
Financial expenses

Profit before taxes (EBT)

Calculations:

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 EXERCISE 5

VIVER is a manufacturing-sector company that produces, and markets finished product

V. To obtain this product, the company uses the direct material M.

Regarding January of a certain year N, the following information is known:

Production Distribution Administrative
Total (€)
Department Department
Indirect materials used 3.550 4.250 1.300 9.100
Supplies and External Services 21.640 5.180 4.620 31.440
Wages and Salaries 20.000 9.000 7.000 36.000
Depreciation expenses 12.810 5.490 5.560 23.860
Total 58.000 23.920 18.480 100.400

• Adding to the wages and salaries, the company pays social charges at a standard
rate of 60% of wages/salaries in both financial and management accounting scope.
• Regarding the wages and salaries of production, they are all direct manufacturing
labor costs.
• Monthly financial expenses are 10.000 €.

a) Direct material M inventory information:

Description Units Unit cost
Beginning Inventory 1.000 25 €
Purchases 2.000 20 €
Direct materials used ? -
Ending Inventory 450 -

b) Finished goods monthly inventory information:

Description Finished Good V WIP
Beginning Inventory 1.500 units at 17 €/unit 14.000 €
Production 7.500 unit -
Sales 8.000 units at 25 €/ unit -
Ending Inventory ? 5.000 €

The company uses FIFO for inventory valuation.

QUESTIONS:
1. Prepare the Income Statement by Nature of Expense and the Income Statement by
Function of Expense for company VIVER

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 ATTACHMENTS

Income Statement by Function of Expense

Description Total (€)

Revenues

COGS

Gross Profit

Distribution expenses

Administrative expenses

Operating Income (EBIT)

Financial expenses

Profit before taxes (EBT)

Calculations:

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 ATTACHMENTS

Income Statement by Nature of Expense

Revenues and Expenses Total (€) Calculations

Sales and service revenues

Changes in inventories

Ending inventory of finished goods

Beginning inventory of finished goods

Ending inventory of WIP

Beginning inventory of WIP

Cost of merchandise and raw materials sold and

consumed
Supplies and External Services

Labor and Personnel Expenses

Other operating income

Other operating expenses

Earnings before interests, taxes, depreciation

and amortization (EBITDA)
Depreciation expenses

Earnings before interests and taxes (EBIT)

Financial revenues

Financial expenses

Profit before taxes

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