Managerial Accounting 18th
Edition by Ray Garrison all chapters with over
200 questions and correct answers
Chapter 1: Managerial Accounting and Cost
Concepts
Q1: What is the primary objective of managerial accounting?
Answer: To provide relevant economic and financial information to internal
users (managers and decision-makers) for planning, directing, controlling, and
decision-making.
Q2: How does managerial accounting differ from financial accounting
regarding regulatory compliance?
Answer: Financial accounting must strictly comply with external standards
such as GAAP or IFRS, whereas managerial accounting is not bound by
GAAP/IFRS and is tailored to internal management needs.
Q3: Define Direct Materials.
Answer: Raw materials that become an integral part of the finished product
and whose costs can be easily and conveniently traced to specific units of
product.
Q4: Define Direct Labor.
Answer: Factory labor costs that can be easily and conveniently traced to
individual units of product (e.g., wages of assembly line workers).
Q5: Define Manufacturing Overhead (MOH).
Answer: All manufacturing costs except direct materials and direct labor,
including indirect materials, indirect labor, factory utilities, factory
maintenance, and factory depreciation.
, Q6: What is the formula for Prime Cost?
Answer:
Prime Cost =Direct Materials+ Direct Labor
Q7: What is the formula for Conversion Cost?
Answer:
Conversion Cost=Direct Labor +Manufacturing Overhead
Q8: What is a Product Cost?
Answer: A cost involved in acquiring or manufacturing a product; consists of
direct materials, direct labor, and manufacturing overhead. Product costs are
stored in inventory until the product is sold.
Q9: What is a Period Cost?
Answer: A cost that is not a product cost; it is expensed on the income
statement in the period in which it is incurred (e.g., selling and administrative
expenses).
Q10: How does a variable cost behave in total and per unit as activity
levels change?
Answer: Total variable cost changes in direct proportion to changes in activity,
while variable cost per unit remains constant.
Q11: How does a fixed cost behave in total and per unit as activity levels
change?
Answer: Total fixed cost remains constant within the relevant range, while
fixed cost per unit decreases as the activity level increases.
Q12: What is the relevant range?
Answer: The range of activity within which the assumptions about variable and
fixed cost behavior are valid.
Q13: What is a mixed cost, and what is its basic algebraic equation?
Answer: A cost containing both variable and fixed components, expressed as:
Y =a+bX Y = total cost, a = total fixed cost, b = variable cost per unit, and X =
activity level.
Q14: What is the high-low method used for?
Answer: A mathematical technique used to separate a mixed cost into its fixed
and variable components using the highest and lowest activity levels.
, Q15: What is the formula for calculating variable cost per unit using the
high-low method?
Answer:
Cost at Highest Activity Level−Cost at Lowest Activity Level
Variable Cost per Unit=
Highest Activity Level−Lowest Activity Level
Q16: Define Opportunity Cost.
Answer: The potential benefit that is given up when one alternative is selected
over another.
Q17: Define Sunk Cost.
Answer: A cost that has already been incurred and cannot be changed by any
decision made now or in the future; it is irrelevant to future decisions.
Q18: What is the traditional income statement format?
Answer:
Sales−Cost of Goods Sold =Gross Margin
Gross Margin−Selling and Administrative Expenses=Net Operating Income
Q19: What is the contribution margin income statement format?
Answer:
Sales−Variable Expenses=Contribution Margin
Contribution Margin−Fixed Expenses=Net Operating Income
Q20: What is Differential Cost (or Incremental Cost)?
Answer: A difference in cost between any two alternatives.
Chapter 2: Job-Order Costing: Calculating Unit
Product Costs
Q21: When is job-order costing appropriate?
Answer: When many different products, jobs, or services are produced each
period, each tailored to distinct customer specifications.
Edition by Ray Garrison all chapters with over
200 questions and correct answers
Chapter 1: Managerial Accounting and Cost
Concepts
Q1: What is the primary objective of managerial accounting?
Answer: To provide relevant economic and financial information to internal
users (managers and decision-makers) for planning, directing, controlling, and
decision-making.
Q2: How does managerial accounting differ from financial accounting
regarding regulatory compliance?
Answer: Financial accounting must strictly comply with external standards
such as GAAP or IFRS, whereas managerial accounting is not bound by
GAAP/IFRS and is tailored to internal management needs.
Q3: Define Direct Materials.
Answer: Raw materials that become an integral part of the finished product
and whose costs can be easily and conveniently traced to specific units of
product.
Q4: Define Direct Labor.
Answer: Factory labor costs that can be easily and conveniently traced to
individual units of product (e.g., wages of assembly line workers).
Q5: Define Manufacturing Overhead (MOH).
Answer: All manufacturing costs except direct materials and direct labor,
including indirect materials, indirect labor, factory utilities, factory
maintenance, and factory depreciation.
, Q6: What is the formula for Prime Cost?
Answer:
Prime Cost =Direct Materials+ Direct Labor
Q7: What is the formula for Conversion Cost?
Answer:
Conversion Cost=Direct Labor +Manufacturing Overhead
Q8: What is a Product Cost?
Answer: A cost involved in acquiring or manufacturing a product; consists of
direct materials, direct labor, and manufacturing overhead. Product costs are
stored in inventory until the product is sold.
Q9: What is a Period Cost?
Answer: A cost that is not a product cost; it is expensed on the income
statement in the period in which it is incurred (e.g., selling and administrative
expenses).
Q10: How does a variable cost behave in total and per unit as activity
levels change?
Answer: Total variable cost changes in direct proportion to changes in activity,
while variable cost per unit remains constant.
Q11: How does a fixed cost behave in total and per unit as activity levels
change?
Answer: Total fixed cost remains constant within the relevant range, while
fixed cost per unit decreases as the activity level increases.
Q12: What is the relevant range?
Answer: The range of activity within which the assumptions about variable and
fixed cost behavior are valid.
Q13: What is a mixed cost, and what is its basic algebraic equation?
Answer: A cost containing both variable and fixed components, expressed as:
Y =a+bX Y = total cost, a = total fixed cost, b = variable cost per unit, and X =
activity level.
Q14: What is the high-low method used for?
Answer: A mathematical technique used to separate a mixed cost into its fixed
and variable components using the highest and lowest activity levels.
, Q15: What is the formula for calculating variable cost per unit using the
high-low method?
Answer:
Cost at Highest Activity Level−Cost at Lowest Activity Level
Variable Cost per Unit=
Highest Activity Level−Lowest Activity Level
Q16: Define Opportunity Cost.
Answer: The potential benefit that is given up when one alternative is selected
over another.
Q17: Define Sunk Cost.
Answer: A cost that has already been incurred and cannot be changed by any
decision made now or in the future; it is irrelevant to future decisions.
Q18: What is the traditional income statement format?
Answer:
Sales−Cost of Goods Sold =Gross Margin
Gross Margin−Selling and Administrative Expenses=Net Operating Income
Q19: What is the contribution margin income statement format?
Answer:
Sales−Variable Expenses=Contribution Margin
Contribution Margin−Fixed Expenses=Net Operating Income
Q20: What is Differential Cost (or Incremental Cost)?
Answer: A difference in cost between any two alternatives.
Chapter 2: Job-Order Costing: Calculating Unit
Product Costs
Q21: When is job-order costing appropriate?
Answer: When many different products, jobs, or services are produced each
period, each tailored to distinct customer specifications.
