Chapter 1 r
Managerial Accounting and Cost Concepts
r r r r r
Questions
1-1 The rthree rmajor rtypes rof rproduct rcosts 1-4
r in ra rmanufacturing rcompany rare rdirect a. Variable rcost: rThe rvariable rcost rper runit ris
r materials, rdirect rlabor, rand rmanufacturing r constant, rbut rtotal rvariable rcost rchanges
r overhead. rin r direct rproportion rto rchanges rin rvolume.
b. Fixed rcost: rThe rtotal rfixed rcost ris rconstant
1-2 r within rthe rrelevant rrange. rThe raverage rfixed
a. Direct rmaterials rare ran rintegral rpart rof ra r cost rper runit rvaries rinversely rwith rchanges r
r finished rproduct rand rtheir rcosts rcan rbe r in rvolume.
r conveniently rtraced rto rit. c. Mixed rcost: rA rmixed rcost rcontains rboth
b. Indirect rmaterials rare rgenerally rsmall r variable rand rfixed rcost relements.
r items rof rmaterial rsuch ras rglue rand rnails. rThey
r may rbe ran rintegral rpart rof ra rfinished rproduct 1-5
rbut r their rcosts rcan rbe rtraced rto rthe rproduct a. Unit rfixed rcosts rdecrease ras rthe ractivity rlevel
ronly rat r great rcost ror rinconvenience. r increases.
c. Direct rlabor rconsists rof rlabor rcosts rthat b. Unit rvariable rcosts rremain rconstant ras rthe
r can rbe reasily rtraced rto rparticular rproducts. r activity rlevel rincreases.
Direct rlabor ris ralso rcalled r―touch rlabor.‖ c. Total rfixed rcosts rremain rconstant ras rthe
d. Indirect rlabor rconsists rof rthe rlabor rcosts r activity rlevel rincreases.
r of rjanitors, rsupervisors, rmaterials rhandlers, rand d. Total rvariable rcosts rincrease ras rthe ractivity
r other rfactory rworkers rthat rcannot rbe r level rincreases.
r conveniently rtraced rto rparticular rproducts.
r These rlabor rcosts rare rincurred rto rsupport 1-6
r production, rbut rthe rworkers rinvolved rdo rnot a. Cost rbehavior: rCost rbehavior rrefers rto rthe
r directly rwork ron rthe rproduct. r way rin rwhich rcosts rchange rin rresponse rto
e. Manufacturing roverhead rincludes rall r changes rin ra rmeasure rof ractivity rsuch ras
r manufacturing rcosts rexcept rdirect rmaterials rand r sales rvolume, rproduction rvolume, ror rorders
r direct rlabor. rConsequently, rmanufacturing r processed.
r overhead rincludes rindirect rmaterials rand rindirect b. Relevant rrange: rThe rrelevant rrange ris rthe
r labor ras rwell ras rother rmanufacturing rcosts. r range rof ractivity rwithin rwhich rassumptions
r about rvariable rand rfixed rcost rbehavior rare
1-3 A rproduct rcost ris rany rcost rinvolved rin r valid.
r purchasing ror rmanufacturing rgoods. rIn rthe rcase
r of rmanufactured rgoods, rthese rcosts rconsist rof 1-7 An ractivity rbase ris ra rmeasure rof
r direct rmaterials, rdirect rlabor, rand rmanufacturing r whatever rcauses rthe rincurrence rof ra rvariable
r overhead. rA rperiod rcost ris ra rcost rthat ris rtaken r cost. rExamples rof ractivity rbases rinclude
r directly rto rthe rincome rstatement ras ran rexpense runits r produced, runits rsold, rletters rtyped,
r in rthe rperiod rin rwhich rit ris rincurred. rbeds rin ra r hospital, rmeals rserved rin ra rcafe,
rservice rcalls r made, retc.
1-8 The rlinear rassumption ris rreasonably
r valid rproviding rthat rthe rcost rformula ris rused
ronly r within rthe rrelevant rrange.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 1
,© rMcGraw rHill rLLC. rAll rrights rreserved. rNo rreproduction ror rdistribution rwithout rthe rprior rwritten rconsent
r of rMcGraw rHill rLLC.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1
,1-9 A rdiscretionary rfixed rcost rhas ra rfairly 1-11 The rtraditional rapproach rorganizes rcosts
r short rplanning rhorizon—usually ra ryear. rSuch r by rfunction, rsuch ras rproduction, rselling, rand
r costs rarise rfrom rannual rdecisions rby r administration. rWithin ra rfunctional rarea, rfixed
r management rto rspend ron rcertain rfixed rcost r and rvariable rcosts rare rintermingled. rThe
r items, rsuch ras radvertising, rresearch, rand r contribution rapproach rincome rstatement
r management rdevelopment. rA rcommitted rfixed r organizes rcosts rby rbehavior, rfirst rdeducting
r cost rhas ra rlong rplanning rhorizon—generally rvariable rexpenses rto robtain rcontribution rmargin,
r many ryears. rSuch rcosts rrelate rto ra rcompany’s r and rthen rdeducting rfixed rexpenses rto robtain rnet
r investment rin rfacilities, requipment, rand rbasic r operating rincome.
r organization. rOnce rsuch rcosts rhave rbeen
r incurred, rthey rare r―locked rin‖ rfor rmany ryears. 1-12 The rcontribution rmargin ris rtotal rsales
r revenue rless rtotal rvariable rexpenses.
1-10 Yes. rAs rthe ranticipated rlevel rof ractivity
r changes, rthe rlevel rof rfixed rcosts rneeded rto 1-13 A rdifferential rcost ris ra rcost rthat rdiffers
r support roperations rmay ralso rchange. rMost rfixed r between ralternatives rin ra rdecision. rA rsunk rcost r
r costs rare radjusted rupward rand rdownward rin r is ra rcost rthat rhas ralready rbeen rincurred rand
r large rsteps, rrather rthan rbeing rabsolutely rfixed rat r cannot rbe raltered rby rany rdecision rtaken rnow ror
r one rlevel rfor rall rranges rof ractivity. r in rthe rfuture. rAn ropportunity rcost ris rthe
rpotential r benefit rthat ris rgiven rup rwhen rone
ralternative ris r selected rover ranother.
1-14 No, rdifferential rcosts rcan rbe reither
r variable ror rfixed. rFor rexample, rthe ralternatives
r might rconsist rof rpurchasing rone rmachine
rrather r than ranother rto rmake ra rproduct. rThe
rdifference r between rthe rfixed rcosts rof
rpurchasing rthe rtwo r machines ris ra rdifferential
rcost.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 3
,
Managerial Accounting and Cost Concepts
r r r r r
Questions
1-1 The rthree rmajor rtypes rof rproduct rcosts 1-4
r in ra rmanufacturing rcompany rare rdirect a. Variable rcost: rThe rvariable rcost rper runit ris
r materials, rdirect rlabor, rand rmanufacturing r constant, rbut rtotal rvariable rcost rchanges
r overhead. rin r direct rproportion rto rchanges rin rvolume.
b. Fixed rcost: rThe rtotal rfixed rcost ris rconstant
1-2 r within rthe rrelevant rrange. rThe raverage rfixed
a. Direct rmaterials rare ran rintegral rpart rof ra r cost rper runit rvaries rinversely rwith rchanges r
r finished rproduct rand rtheir rcosts rcan rbe r in rvolume.
r conveniently rtraced rto rit. c. Mixed rcost: rA rmixed rcost rcontains rboth
b. Indirect rmaterials rare rgenerally rsmall r variable rand rfixed rcost relements.
r items rof rmaterial rsuch ras rglue rand rnails. rThey
r may rbe ran rintegral rpart rof ra rfinished rproduct 1-5
rbut r their rcosts rcan rbe rtraced rto rthe rproduct a. Unit rfixed rcosts rdecrease ras rthe ractivity rlevel
ronly rat r great rcost ror rinconvenience. r increases.
c. Direct rlabor rconsists rof rlabor rcosts rthat b. Unit rvariable rcosts rremain rconstant ras rthe
r can rbe reasily rtraced rto rparticular rproducts. r activity rlevel rincreases.
Direct rlabor ris ralso rcalled r―touch rlabor.‖ c. Total rfixed rcosts rremain rconstant ras rthe
d. Indirect rlabor rconsists rof rthe rlabor rcosts r activity rlevel rincreases.
r of rjanitors, rsupervisors, rmaterials rhandlers, rand d. Total rvariable rcosts rincrease ras rthe ractivity
r other rfactory rworkers rthat rcannot rbe r level rincreases.
r conveniently rtraced rto rparticular rproducts.
r These rlabor rcosts rare rincurred rto rsupport 1-6
r production, rbut rthe rworkers rinvolved rdo rnot a. Cost rbehavior: rCost rbehavior rrefers rto rthe
r directly rwork ron rthe rproduct. r way rin rwhich rcosts rchange rin rresponse rto
e. Manufacturing roverhead rincludes rall r changes rin ra rmeasure rof ractivity rsuch ras
r manufacturing rcosts rexcept rdirect rmaterials rand r sales rvolume, rproduction rvolume, ror rorders
r direct rlabor. rConsequently, rmanufacturing r processed.
r overhead rincludes rindirect rmaterials rand rindirect b. Relevant rrange: rThe rrelevant rrange ris rthe
r labor ras rwell ras rother rmanufacturing rcosts. r range rof ractivity rwithin rwhich rassumptions
r about rvariable rand rfixed rcost rbehavior rare
1-3 A rproduct rcost ris rany rcost rinvolved rin r valid.
r purchasing ror rmanufacturing rgoods. rIn rthe rcase
r of rmanufactured rgoods, rthese rcosts rconsist rof 1-7 An ractivity rbase ris ra rmeasure rof
r direct rmaterials, rdirect rlabor, rand rmanufacturing r whatever rcauses rthe rincurrence rof ra rvariable
r overhead. rA rperiod rcost ris ra rcost rthat ris rtaken r cost. rExamples rof ractivity rbases rinclude
r directly rto rthe rincome rstatement ras ran rexpense runits r produced, runits rsold, rletters rtyped,
r in rthe rperiod rin rwhich rit ris rincurred. rbeds rin ra r hospital, rmeals rserved rin ra rcafe,
rservice rcalls r made, retc.
1-8 The rlinear rassumption ris rreasonably
r valid rproviding rthat rthe rcost rformula ris rused
ronly r within rthe rrelevant rrange.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 1
,© rMcGraw rHill rLLC. rAll rrights rreserved. rNo rreproduction ror rdistribution rwithout rthe rprior rwritten rconsent
r of rMcGraw rHill rLLC.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1
,1-9 A rdiscretionary rfixed rcost rhas ra rfairly 1-11 The rtraditional rapproach rorganizes rcosts
r short rplanning rhorizon—usually ra ryear. rSuch r by rfunction, rsuch ras rproduction, rselling, rand
r costs rarise rfrom rannual rdecisions rby r administration. rWithin ra rfunctional rarea, rfixed
r management rto rspend ron rcertain rfixed rcost r and rvariable rcosts rare rintermingled. rThe
r items, rsuch ras radvertising, rresearch, rand r contribution rapproach rincome rstatement
r management rdevelopment. rA rcommitted rfixed r organizes rcosts rby rbehavior, rfirst rdeducting
r cost rhas ra rlong rplanning rhorizon—generally rvariable rexpenses rto robtain rcontribution rmargin,
r many ryears. rSuch rcosts rrelate rto ra rcompany’s r and rthen rdeducting rfixed rexpenses rto robtain rnet
r investment rin rfacilities, requipment, rand rbasic r operating rincome.
r organization. rOnce rsuch rcosts rhave rbeen
r incurred, rthey rare r―locked rin‖ rfor rmany ryears. 1-12 The rcontribution rmargin ris rtotal rsales
r revenue rless rtotal rvariable rexpenses.
1-10 Yes. rAs rthe ranticipated rlevel rof ractivity
r changes, rthe rlevel rof rfixed rcosts rneeded rto 1-13 A rdifferential rcost ris ra rcost rthat rdiffers
r support roperations rmay ralso rchange. rMost rfixed r between ralternatives rin ra rdecision. rA rsunk rcost r
r costs rare radjusted rupward rand rdownward rin r is ra rcost rthat rhas ralready rbeen rincurred rand
r large rsteps, rrather rthan rbeing rabsolutely rfixed rat r cannot rbe raltered rby rany rdecision rtaken rnow ror
r one rlevel rfor rall rranges rof ractivity. r in rthe rfuture. rAn ropportunity rcost ris rthe
rpotential r benefit rthat ris rgiven rup rwhen rone
ralternative ris r selected rover ranother.
1-14 No, rdifferential rcosts rcan rbe reither
r variable ror rfixed. rFor rexample, rthe ralternatives
r might rconsist rof rpurchasing rone rmachine
rrather r than ranother rto rmake ra rproduct. rThe
rdifference r between rthe rfixed rcosts rof
rpurchasing rthe rtwo r machines ris ra rdifferential
rcost.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 3
,
