Chapter 1 ss
Managerial Accounting and Cost Concepts ss ss ss ss ss
Questions
1-1 The three major types of product costs ss ss ss ss ss ss s s 1-4
in a manufacturing company are direct material
ss ss ss ss ss s s a. Variable cost: The variable cost per unit is c ss ss ss ss ss ss ss s s
s, direct labor, and manufacturing overhead.
ss ss ss ss s s onstant, but total variable cost changes in ss ss ss ss ss ss s s
direct proportion to changes in volume. ss ss ss ss ss
1-2 b. Fixed cost: The total fixed cost is constant wiss ss ss ss ss ss ss s s
a. Direct materials are an integral part of a ss ss ss ss ss ss ss s s thin the relevant range. The average fixed co
ss ss ss ss ss ss s s
finished product and their costs can be conveni ss ss ss ss ss ss s s st per unit varies inversely with changes in v
ss ss ss ss ss ss sss s ss
ently traced to it. ss ss ss olume.
b. Indirect materials are generally small item ss ss ss ss s s c. Mixed cost: A mixed cost contains both ss ss ss ss ss ss s s
s of material such as glue and nails. They may be
ss ss ss ss ss ss ss ss s s ss ss variable and fixed cost elements. ss ss ss ss
an integral part of a finished product but their cos
ss ss ss ss ss ss ss s s ss
ts can be traced to the product only at great cost
ss ss ss ss ss ss ss ss s s ss ss 1-5
or inconvenience.
ss a. Unit fixed costs decrease as the activity level
ss ss ss ss ss ss ss s s
c. Direct labor consists of labor costs that ss ss ss ss ss ss ss increases.
can be easily traced to particular products.
ss ss ss ss ss ss b. Unit variable costs remain constant as the
ss ss ss ss ss ss s
Directlabor is also called ―touchlabor.‖
s s s s s s activity level increases.
s ss ss
d. Indirect labor consists of the labor costs ss ss ss ss ss ss s s c. Total fixed costs remain constant as the ss ss ss ss ss ss s s
of janitors, supervisors, materials handlers, and
ss ss ss ss ss s s activity level increases. ss ss
other factory workers that cannot be convenient
ss ss ss ss ss s s d. Total variable costs increase as the activity ss ss ss ss ss ss s s
ly traced to particular products. These labor cost
ss ss ss ss s s ss ss level increases. ss
s are incurred to support production, but the wo
ss ss ss ss s s ss ss ss
rkers involved do not directly work on the produ
ss ss ss s s ss ss ss ss 1-6
ct. a. Cost behavior: Cost behavior refers to the w
ss ss ss ss ss ss s s
e. Manufacturing overhead includes all man ss ss ss s s ay in which costs change in response to cha
ss ss ss ss ss ss ss s s
ufacturing costs except direct materials and direc ss ss ss ss ss s s nges in a measure of activity such as sales v
ss ss ss ss ss ss ss s s ss
t labor. Consequently, manufacturing overhead in
ss ss ss s s ss olume, production volume, or orders proces ss ss ss ss s s
cludes indirect materials and indirect labor as we
ss ss ss ss s s ss ss sed.
ll as other manufacturing costs.
ss ss ss ss b. Relevant range: The relevant range is the r ss ss ss ss ss ss s s
ange of activity within which assumptionsss ss ss ss ss s s
1-3 about variable and fixed cost behavior are ss ss ss ss ss ss s s
A product cost is any cost involved in pur ss ss ss ss ss ss ss s s valid.
chasing or manufacturing goods. In the case of ss ss ss ss ss ss s s ss
manufactured goods, these costs consist of direc ss ss ss ss ss s s 1-7 An activity base is a measure of what ss ss ss ss ss ss s s
t materials, direct labor, and manufacturing over
ss ss ss ss ss s s ever causes the incurrence of a variable cost.
ss ss ss ss ss ss s s ss
head. A period cost is a cost that is taken directly
ss ss ss ss ss ss ss ss ss s s Examples of activity bases include units prod ss ss ss ss ss s s
to the income statement as an expense in the pe
ss ss ss ss ss ss ss s s ss ss uced, units sold, letters typed, beds in a hospi
ss ss ss ss ss ss ss s s
riod in which it is incurred.
ss ss ss ss ss tal, meals served in a cafe, service calls made
ss ss ss ss ss ss ss s s
, etc.
ss
1-8 The linear assumption is reasonably valid ss ss ss ss ss s
providing that the cost formula is used only withi
s ss ss ss ss ss ss ss s s
n the relevant range.
ss ss ss
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 ss ss
ss
ss ss ss ss 1
,© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of
ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss s s ss
McGraw Hill LLC.
ss ss
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent
ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss
of McGraw Hill LLC.
ss ss ss
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1
ss ss
ss
ss ss ss ss
,1-9 A discretionary fixed cost has a fairly s
ss ss ss ss ss ss s s 1-11 The traditional approach organizes costs ss ss ss ss s
hort planning horizon—
ss ss sby function, such as production, selling, and ad
ss ss ss ss ss ss ss
usually a year. Such costs arise from annual dec
ss ss ss s s ss ss ss ss ministration. Within a functional area, fixed and v ss ss ss ss ss s s ss
isions by management to spend on certain fixe
ss s s ss ss ss ss ss ariable costs are intermingled. The contribution a
ss ss ss ss s s ss
d cost items, such as advertising, research, and
ss s s ss ss ss ss ss pproach income statement organizes costs by be
ss ss s s ss ss ss
management development. A committed fixed
s s ss ss ss ss havior, first deducting variable expenses to obtain
ss ss ss ss ss ss ss
cost has a long planning horizon—
s s ss ss ss ss ss contribution margin, and then deducting fixed ex ss s s ss ss ss ss
generally many years. Such costs relate to a co
s s ss ss ss ss ss ss ss penses to obtain net operating income. ss ss ss s s ss
mpany’s investment in facilities, equipment, an
s s ss ss ss ss
d basic organization. Once such costs have bee
ss s s ss ss ss ss ss 1-12 The contribution margin is total sales ss ss ss ss ss s s
n incurred, they are ―locked in‖ for many years.
s s ss s ss ss ss ss ss revenue less total variable expenses. ss ss ss ss
1-10 Yes. As the anticipated level of activity ch ss ss ss ss ss ss s s 1-13 A differential cost is a cost that differs be ss ss ss ss ss ss ss s s
anges, the level of fixed costs needed to support
ss ss ss ss ss ss ss s s ss tween alternatives in a decision. A sunk cost is a
ss ss ss ss ss ss ss sss s ss ss
operations may also change. Most fixed costs are ss ss ss ss ss s s ss s cost that has already been incurred and cannot b
ss ss ss ss ss ss s s ss
adjusted upward and downward in large steps, r
s ss ss ss ss s s ss ss e altered by any decision taken now or in the futu
ss ss ss ss ss ss ss s s ss ss
ather than being absolutely fixed at one level for
ss ss ss ss ss s s ss ss ss re. An opportunity cost is the potential benefit th
ss ss ss ss ss ss s s ss
all ranges of activity.
ss ss ss at is given up when one alternative is selected ov
ss ss ss ss ss ss ss s s ss
er another.
ss
1-14 No, differential costs can be either varia ss ss ss ss ss s s
ble or fixed. For example, the alternatives might
ss ss ss ss ss ss s s s
consist of purchasing one machine rather than a
s ss ss ss ss ss s s ss
nother to make a product. The difference betwe
ss ss ss ss ss ss s s
en the fixed costs of purchasing the two machin
ss ss ss ss ss ss ss s s
es is a differential cost.
ss ss ss ss
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1
ss ss
ss
ss ss ss ss 3
,
Managerial Accounting and Cost Concepts ss ss ss ss ss
Questions
1-1 The three major types of product costs ss ss ss ss ss ss s s 1-4
in a manufacturing company are direct material
ss ss ss ss ss s s a. Variable cost: The variable cost per unit is c ss ss ss ss ss ss ss s s
s, direct labor, and manufacturing overhead.
ss ss ss ss s s onstant, but total variable cost changes in ss ss ss ss ss ss s s
direct proportion to changes in volume. ss ss ss ss ss
1-2 b. Fixed cost: The total fixed cost is constant wiss ss ss ss ss ss ss s s
a. Direct materials are an integral part of a ss ss ss ss ss ss ss s s thin the relevant range. The average fixed co
ss ss ss ss ss ss s s
finished product and their costs can be conveni ss ss ss ss ss ss s s st per unit varies inversely with changes in v
ss ss ss ss ss ss sss s ss
ently traced to it. ss ss ss olume.
b. Indirect materials are generally small item ss ss ss ss s s c. Mixed cost: A mixed cost contains both ss ss ss ss ss ss s s
s of material such as glue and nails. They may be
ss ss ss ss ss ss ss ss s s ss ss variable and fixed cost elements. ss ss ss ss
an integral part of a finished product but their cos
ss ss ss ss ss ss ss s s ss
ts can be traced to the product only at great cost
ss ss ss ss ss ss ss ss s s ss ss 1-5
or inconvenience.
ss a. Unit fixed costs decrease as the activity level
ss ss ss ss ss ss ss s s
c. Direct labor consists of labor costs that ss ss ss ss ss ss ss increases.
can be easily traced to particular products.
ss ss ss ss ss ss b. Unit variable costs remain constant as the
ss ss ss ss ss ss s
Directlabor is also called ―touchlabor.‖
s s s s s s activity level increases.
s ss ss
d. Indirect labor consists of the labor costs ss ss ss ss ss ss s s c. Total fixed costs remain constant as the ss ss ss ss ss ss s s
of janitors, supervisors, materials handlers, and
ss ss ss ss ss s s activity level increases. ss ss
other factory workers that cannot be convenient
ss ss ss ss ss s s d. Total variable costs increase as the activity ss ss ss ss ss ss s s
ly traced to particular products. These labor cost
ss ss ss ss s s ss ss level increases. ss
s are incurred to support production, but the wo
ss ss ss ss s s ss ss ss
rkers involved do not directly work on the produ
ss ss ss s s ss ss ss ss 1-6
ct. a. Cost behavior: Cost behavior refers to the w
ss ss ss ss ss ss s s
e. Manufacturing overhead includes all man ss ss ss s s ay in which costs change in response to cha
ss ss ss ss ss ss ss s s
ufacturing costs except direct materials and direc ss ss ss ss ss s s nges in a measure of activity such as sales v
ss ss ss ss ss ss ss s s ss
t labor. Consequently, manufacturing overhead in
ss ss ss s s ss olume, production volume, or orders proces ss ss ss ss s s
cludes indirect materials and indirect labor as we
ss ss ss ss s s ss ss sed.
ll as other manufacturing costs.
ss ss ss ss b. Relevant range: The relevant range is the r ss ss ss ss ss ss s s
ange of activity within which assumptionsss ss ss ss ss s s
1-3 about variable and fixed cost behavior are ss ss ss ss ss ss s s
A product cost is any cost involved in pur ss ss ss ss ss ss ss s s valid.
chasing or manufacturing goods. In the case of ss ss ss ss ss ss s s ss
manufactured goods, these costs consist of direc ss ss ss ss ss s s 1-7 An activity base is a measure of what ss ss ss ss ss ss s s
t materials, direct labor, and manufacturing over
ss ss ss ss ss s s ever causes the incurrence of a variable cost.
ss ss ss ss ss ss s s ss
head. A period cost is a cost that is taken directly
ss ss ss ss ss ss ss ss ss s s Examples of activity bases include units prod ss ss ss ss ss s s
to the income statement as an expense in the pe
ss ss ss ss ss ss ss s s ss ss uced, units sold, letters typed, beds in a hospi
ss ss ss ss ss ss ss s s
riod in which it is incurred.
ss ss ss ss ss tal, meals served in a cafe, service calls made
ss ss ss ss ss ss ss s s
, etc.
ss
1-8 The linear assumption is reasonably valid ss ss ss ss ss s
providing that the cost formula is used only withi
s ss ss ss ss ss ss ss s s
n the relevant range.
ss ss ss
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 ss ss
ss
ss ss ss ss 1
,© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of
ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss s s ss
McGraw Hill LLC.
ss ss
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent
ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss
of McGraw Hill LLC.
ss ss ss
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1
ss ss
ss
ss ss ss ss
,1-9 A discretionary fixed cost has a fairly s
ss ss ss ss ss ss s s 1-11 The traditional approach organizes costs ss ss ss ss s
hort planning horizon—
ss ss sby function, such as production, selling, and ad
ss ss ss ss ss ss ss
usually a year. Such costs arise from annual dec
ss ss ss s s ss ss ss ss ministration. Within a functional area, fixed and v ss ss ss ss ss s s ss
isions by management to spend on certain fixe
ss s s ss ss ss ss ss ariable costs are intermingled. The contribution a
ss ss ss ss s s ss
d cost items, such as advertising, research, and
ss s s ss ss ss ss ss pproach income statement organizes costs by be
ss ss s s ss ss ss
management development. A committed fixed
s s ss ss ss ss havior, first deducting variable expenses to obtain
ss ss ss ss ss ss ss
cost has a long planning horizon—
s s ss ss ss ss ss contribution margin, and then deducting fixed ex ss s s ss ss ss ss
generally many years. Such costs relate to a co
s s ss ss ss ss ss ss ss penses to obtain net operating income. ss ss ss s s ss
mpany’s investment in facilities, equipment, an
s s ss ss ss ss
d basic organization. Once such costs have bee
ss s s ss ss ss ss ss 1-12 The contribution margin is total sales ss ss ss ss ss s s
n incurred, they are ―locked in‖ for many years.
s s ss s ss ss ss ss ss revenue less total variable expenses. ss ss ss ss
1-10 Yes. As the anticipated level of activity ch ss ss ss ss ss ss s s 1-13 A differential cost is a cost that differs be ss ss ss ss ss ss ss s s
anges, the level of fixed costs needed to support
ss ss ss ss ss ss ss s s ss tween alternatives in a decision. A sunk cost is a
ss ss ss ss ss ss ss sss s ss ss
operations may also change. Most fixed costs are ss ss ss ss ss s s ss s cost that has already been incurred and cannot b
ss ss ss ss ss ss s s ss
adjusted upward and downward in large steps, r
s ss ss ss ss s s ss ss e altered by any decision taken now or in the futu
ss ss ss ss ss ss ss s s ss ss
ather than being absolutely fixed at one level for
ss ss ss ss ss s s ss ss ss re. An opportunity cost is the potential benefit th
ss ss ss ss ss ss s s ss
all ranges of activity.
ss ss ss at is given up when one alternative is selected ov
ss ss ss ss ss ss ss s s ss
er another.
ss
1-14 No, differential costs can be either varia ss ss ss ss ss s s
ble or fixed. For example, the alternatives might
ss ss ss ss ss ss s s s
consist of purchasing one machine rather than a
s ss ss ss ss ss s s ss
nother to make a product. The difference betwe
ss ss ss ss ss ss s s
en the fixed costs of purchasing the two machin
ss ss ss ss ss ss ss s s
es is a differential cost.
ss ss ss ss
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1
ss ss
ss
ss ss ss ss 3
,
