Question

1. Dolan Company's accounting records reflect the following inventories:

Dec. 31, 2020

Dec. 31, 2019

Raw materials inventory	$310,000	$260,000
Work in process inventory	300,000	160,000
Finished goods inventory	190,000	150,000

During 2020, $800,000 of raw materials were purchased, direct labor costs amounted to $670,000, and manufacturing overhead incurred was $640,000.
Dolan Company's total manufacturing costs incurred in 2020 amounted to

2. Management by exception

	A.	means that only unfavorable differences will be investigated.
	B.	means that material differences will be investigated.
	C.	means that all differences will be investigated.
	D.	causes managers to be buried under voluminous paperwork.

Answer 1

1.

Calculation of Total manufacturing costs incurred
Direct materials:
Raw materials inventory beginning	260,000
Add: Material purchased	800,000
Total raw materials available	1,060,000
Less: Raw materials inventory ending	-310,000
Raw material used in production		750,000
Direct labor		670,000
Manufacturing Overheads		640,000
Total Manufacturing Costs		$2,060,000

Dolan Company's total manufacturing costs incurred in 2020 amounted to $2,060,000

2.

Management by exception means that material differences will be investigated.

Correct option is B.

Under the management by exception only material differences are considered (whether favorable or unfavorable). Immaterial differences are ignored under management by exception.