Solution Manual for Managerial Accounting,
18th Edition
By Ray Garrison, Eric Noreen and Peter Brewer
Verified Chapter's 1 - 16 | Complete
,Table of Contents
Chapter One: Managerial Accounting and Cost Concepts
Chapter Two: Job-Order Costing: Calculating Unit Product Costs
Chapter Three: Job-Order Costing: Cost Flows and External Reporting
Chapter Four: Process Costing
Chapter Five: Cost-Volume-Profit Relationships
Chapter Six: Variable Costing and Segment Reporting: Tools for Management
Chapter Seven: Activity-Based Costing: A Tool to Aid Decision Making
Chapter Eight: Master Budgeting
Chapter Nine: Flexible Budgets and Performance Analysis
Chapter Ten: Standard Costs and Variances
Chapter Eleven: Responsibility Accounting Systems
Chapter Twelve: Strategic Performance Measurement
Chapter Thirteen: Differential Analysis: The Key to Decision Making
Chapter Fourteen: Capital Budgeting Decisions
Chapter Fifteen: Statement of Cash Flows
Chapter Sixteen: Financial Statement Analysis
,Chapter 1
Managerial Accounting and Cost Concepts
Questions
1-1 The three major types of product costs in a 1-4
manufacturing company are direct materials, direct labor, a. Variable cost: The variable cost per unit is constant,
and manufacturing overhead. but total variable cost changes in direct proportion to
changes in volume.
1-2 b. Fixed cost: The total fixed cost is constant within the
a. Direct materials are an integral part of a finished relevant range. The average fixed cost per unit varies
product and their costs can be conveniently traced to it. inversely with changes in volume.
b. Indirect materials are generally small items of c. Mixed cost: A mixed cost contains both variable
material such as glue and nails. They may be an integral and fixed cost elements.
part of a finished product but their costs can be traced to
the product only at great cost or inconvenience. 1-5
c. Direct labor consists of labor costs that can be a. Unit fixed costs decrease as the activity level
easily traced to particular products. increases.
Direct labor is also called ―touch labor.ǁ b. Unit variable costs remain constant as the activity
d. Indirect labor consists of the labor costs of level increases.
janitors, supervisors, materials handlers, and other factory c. Total fixed costs remain constant as the activity
workers that cannot be conveniently traced to particular level increases.
products. These labor costs are incurred to support d. Total variable costs increase as the activity level
production, but the workers involved do not directly work increases.
on the product.
e. Manufacturing overhead includes all 1-6
manufacturing costs except direct materials and direct a. Cost behavior: Cost behavior refers to the way in
labor. Consequently, manufacturing overhead includes which costs change in response to changes in a
indirect materials and indirect labor as well as other measure of activity such as sales volume,
manufacturing costs. production volume, or orders processed.
b. Relevant range: The relevant range is the range of
1-3 A product cost is any cost involved in purchasing activity within which assumptions about variable
or manufacturing goods. In the case of manufactured and fixed cost behavior are valid.
goods, these costs consist of direct materials, direct labor,
and manufacturing overhead. A period cost is a cost that is 1-7 An activity base is a measure of whatever
taken directly to the income statement as an expense in causes the incurrence of a variable cost. Examples of
the period in which it is incurred. activity bases include units produced, units sold,
letters typed, beds in a hospital, meals served in a
cafe, service calls made, etc.
1-8 The linear assumption is reasonably valid
providing that the cost formula is used only within the
relevant range.
, 1-9 A discretionary fixed cost has a fairly short 1-11 The traditional approach organizes costs by
planning horizon—usually a year. Such costs arise from function, such as production, selling, and administration.
annual decisions by management to spend on certain Within a functional area, fixed and variable costs are
fixed cost items, such as advertising, research, and intermingled. The contribution approach income statement
management development. A committed fixed cost has organizes costs by behavior, first deducting variable
a long planning horizon—generally many years. Such expenses to obtain contribution margin, and then deducting
costs relate to a company’s investment in facilities, fixed expenses to obtain net operating income.
equipment, and basic organization. Once such costs
have been incurred, they are ―locked inǁ for many 1-12 The contribution margin is total sales revenue
years. less total variable expenses.
1-10 Yes. As the anticipated level of activity changes, 1-13 A differential cost is a cost that differs between
the level of fixed costs needed to support operations may alternatives in a decision. A sunk cost is a cost that has
also change. Most fixed costs are adjusted upward and already been incurred and cannot be altered by any
downward in large steps, rather than being absolutely fixed decision taken now or in the future. An opportunity cost is
at one level for all ranges of activity. the potential benefit that is given up when one alternative is
selected over another.
1-14 No, differential costs can be either variable or
fixed. For example, the alternatives might consist of
purchasing one machine rather than another to make a
product. The difference between the fixed costs of
purchasing the two machines is a differential cost.
Managerial Accounting 18th Edition, Solutions Manual,
18th Edition
By Ray Garrison, Eric Noreen and Peter Brewer
Verified Chapter's 1 - 16 | Complete
,Table of Contents
Chapter One: Managerial Accounting and Cost Concepts
Chapter Two: Job-Order Costing: Calculating Unit Product Costs
Chapter Three: Job-Order Costing: Cost Flows and External Reporting
Chapter Four: Process Costing
Chapter Five: Cost-Volume-Profit Relationships
Chapter Six: Variable Costing and Segment Reporting: Tools for Management
Chapter Seven: Activity-Based Costing: A Tool to Aid Decision Making
Chapter Eight: Master Budgeting
Chapter Nine: Flexible Budgets and Performance Analysis
Chapter Ten: Standard Costs and Variances
Chapter Eleven: Responsibility Accounting Systems
Chapter Twelve: Strategic Performance Measurement
Chapter Thirteen: Differential Analysis: The Key to Decision Making
Chapter Fourteen: Capital Budgeting Decisions
Chapter Fifteen: Statement of Cash Flows
Chapter Sixteen: Financial Statement Analysis
,Chapter 1
Managerial Accounting and Cost Concepts
Questions
1-1 The three major types of product costs in a 1-4
manufacturing company are direct materials, direct labor, a. Variable cost: The variable cost per unit is constant,
and manufacturing overhead. but total variable cost changes in direct proportion to
changes in volume.
1-2 b. Fixed cost: The total fixed cost is constant within the
a. Direct materials are an integral part of a finished relevant range. The average fixed cost per unit varies
product and their costs can be conveniently traced to it. inversely with changes in volume.
b. Indirect materials are generally small items of c. Mixed cost: A mixed cost contains both variable
material such as glue and nails. They may be an integral and fixed cost elements.
part of a finished product but their costs can be traced to
the product only at great cost or inconvenience. 1-5
c. Direct labor consists of labor costs that can be a. Unit fixed costs decrease as the activity level
easily traced to particular products. increases.
Direct labor is also called ―touch labor.ǁ b. Unit variable costs remain constant as the activity
d. Indirect labor consists of the labor costs of level increases.
janitors, supervisors, materials handlers, and other factory c. Total fixed costs remain constant as the activity
workers that cannot be conveniently traced to particular level increases.
products. These labor costs are incurred to support d. Total variable costs increase as the activity level
production, but the workers involved do not directly work increases.
on the product.
e. Manufacturing overhead includes all 1-6
manufacturing costs except direct materials and direct a. Cost behavior: Cost behavior refers to the way in
labor. Consequently, manufacturing overhead includes which costs change in response to changes in a
indirect materials and indirect labor as well as other measure of activity such as sales volume,
manufacturing costs. production volume, or orders processed.
b. Relevant range: The relevant range is the range of
1-3 A product cost is any cost involved in purchasing activity within which assumptions about variable
or manufacturing goods. In the case of manufactured and fixed cost behavior are valid.
goods, these costs consist of direct materials, direct labor,
and manufacturing overhead. A period cost is a cost that is 1-7 An activity base is a measure of whatever
taken directly to the income statement as an expense in causes the incurrence of a variable cost. Examples of
the period in which it is incurred. activity bases include units produced, units sold,
letters typed, beds in a hospital, meals served in a
cafe, service calls made, etc.
1-8 The linear assumption is reasonably valid
providing that the cost formula is used only within the
relevant range.
, 1-9 A discretionary fixed cost has a fairly short 1-11 The traditional approach organizes costs by
planning horizon—usually a year. Such costs arise from function, such as production, selling, and administration.
annual decisions by management to spend on certain Within a functional area, fixed and variable costs are
fixed cost items, such as advertising, research, and intermingled. The contribution approach income statement
management development. A committed fixed cost has organizes costs by behavior, first deducting variable
a long planning horizon—generally many years. Such expenses to obtain contribution margin, and then deducting
costs relate to a company’s investment in facilities, fixed expenses to obtain net operating income.
equipment, and basic organization. Once such costs
have been incurred, they are ―locked inǁ for many 1-12 The contribution margin is total sales revenue
years. less total variable expenses.
1-10 Yes. As the anticipated level of activity changes, 1-13 A differential cost is a cost that differs between
the level of fixed costs needed to support operations may alternatives in a decision. A sunk cost is a cost that has
also change. Most fixed costs are adjusted upward and already been incurred and cannot be altered by any
downward in large steps, rather than being absolutely fixed decision taken now or in the future. An opportunity cost is
at one level for all ranges of activity. the potential benefit that is given up when one alternative is
selected over another.
1-14 No, differential costs can be either variable or
fixed. For example, the alternatives might consist of
purchasing one machine rather than another to make a
product. The difference between the fixed costs of
purchasing the two machines is a differential cost.
Managerial Accounting 18th Edition, Solutions Manual,
