TESTBANK
Solutions for Managerial Accounting, 18th Edition by Ray
Garrison
Managerial`Accounting`18th`Edition,`Solutions`Manual,`Chapter` 1
1
,Chapter 1 `
Managerial Accounting and Cost Concepts
` ` ` ` `
Questions
1-1 The`three`major`types`of`product`cos 1-4
ts`in`a`manufacturing`company`are`direct`ma a. Variable`cost:`The`variable`cost`per`unit`i
terials,`direct`labor,`and`manufacturing`overh s`constant,`but`total`variable`cost`change
ead. s`in`direct`proportion`to`changes`in`volu
me.
1-2 b. Fixed`cost:`The`total`fixed`cost`is`constant
a. Direct`materials`are`an`integral`part`of `within`the`relevant`range.`The`average`fix
`a`finished`product`and`their`costs`can`be`co ed`cost`per`unit`varies`inversely`with`chan
nveniently`traced`to`it. ges` in`volume.
b. Indirect`materials`are`generally`small`ite c. Mixed`cost:`A`mixed`cost`contains`bot
ms`of`material`such`as`glue`and`nails.`They`m h`variable`and`fixed`cost`elements.
ay`be`an`integral`part`of`a`finished`product`bu
t`their`costs`can`be`traced`to`the`product`only 1-5
`at`great`cost`or`inconvenience. a. Unit`fixed`costs`decrease`as`the`activity`lev
c. Direct`labor`consists`of`labor`costs`th el`increases.
at`can`be`easily`traced`to`particular`product b. Unit`variable`costs`remain`constant`as`th
s. e`activity`level`increases.
Direct`labor`is`also`called`―touch`labor.‖ c. Total`fixed`costs`remain`constant`as`t
d. Indirect`labor`consists`of`the`labor`cost he`activity`level`increases.
s`of`janitors,`supervisors,`materials`handlers,` d. Total`variable`costs`increase`as`the`activi
and`other`factory`workers`that`cannot`be`con ty`level`increases.
veniently`traced`to`particular`products.`These
`labor`costs`are`incurred`to`support`productio 1-6
n,`but`the`workers`involved`do`not`directly`w a. Cost`behavior:`Cost`behavior`refers`to`th
ork`on`the`product. e`way`in`which`costs`change`in`response
e. Manufacturing`overhead`includes`all`ma `to`changes`in`a`measure`of`activity`suc
nufacturing`costs`except`direct`materials`and` h`as`sales`volume,`production`volume,`or
direct`labor.`Consequently,`manufacturing`over `orders`processed.
head`includes`indirect`materials`and`indirect`la b. Relevant`range:`The`relevant`range`is`th
bor`as`well`as`other`manufacturing`costs. e`range`of`activity`within`which`assumpti
ons`about`variable`and`fixed`cost`behavi
1-3 or`are`valid.
A`product`cost`is`any`cost`involved`in`
purchasing`or`manufacturing`goods.`In`the`ca 1-7 An`activity`base`is`a`measure`of`w
se`of`manufactured`goods,`these`costs`consist hatever`causes`the`incurrence`of`a`variable
`of`direct`materials,`direct`labor,`and`manufact `cost.`Examples`of`activity`bases`include`un
uring`overhead.`A`period`cost`is`a`cost`that`is its`produced,`units`sold,`letters`typed,`beds
`taken`directly`to`the`income`statement`as`an `in`a`hospital,`meals`served`in`a`cafe,`servi
`expense`in`the`period`in`which`it`is`incurred. ce`calls`made,`etc.
1-8 The`linear`assumption`is`reasonably`va
lid`providing`that`the`cost`formula`is`used`only
`within`the`relevant`range.
Managerial`Accounting`18th`Edition,`Solutions`Manual,`Chapter` 1
1
,©`McGraw`Hill`LLC.`All`rights`reserved.`No`reproduction`or`distribution`without`the`prior`written`cons
ent`of`McGraw`Hill`LLC.
Managerial`Accounting`18th`Edition,`Solutions`Manual,`Chapter` 1
1
, 1-9 A`discretionary`fixed`cost`has`a`fairl 1-11 The`traditional`approach`organizes`cost
y`short`planning`horizon— s`by`function,`such`as`production,`selling,`and
usually`a`year.`Such`costs`arise`from`annual `administration.`Within`a`functional`area,`fixed
`decisions`by`management`to`spend`on`cert `and`variable`costs`are`intermingled.`The`cont
ain`fixed`cost`items,`such`as`advertising,`re ribution`approach`income`statement`organizes
search,`and`management`development.`A`co `costs`by`behavior,`first`deducting`variable`ex
mmitted`fixed`cost`has`a`long`planning`hori penses`to`obtain`contribution`margin,`and`then
zon— `deducting`fixed`expenses`to`obtain`net`operat
generally`many`years.`Such`costs`relate`to` ing`income.
a`company’s`investment`in`facilities,`equipm
ent,`and`basic`organization.`Once`such`cost 1-12 The`contribution`margin`is`total`sale
s`have`been`incurred,`they`are`―locked`in‖`f s`revenue`less`total`variable`expenses.
or`many`years.
1-13 A`differential`cost`is`a`cost`that`differs
1-10 Yes.`As`the`anticipated`level`of`activity `between`alternatives`in`a`decision.`A`sunk`co
`changes,`the`level`of`fixed`costs`needed`to`s st` is`a`cost`that`has`already`been`incurred`an
upport`operations`may`also`change.`Most`fixe d`cannot`be`altered`by`any`decision`taken`no
d`costs`are`adjusted`upward`and`downward`in w`or`in`the`future.`An`opportunity`cost`is`the`
`large`steps,`rather`than`being`absolutely`fixed potential`benefit`that`is`given`up`when`one`alt
`at`one`level`for`all`ranges`of`activity. ernative`is`selected`over`another.
1-14 No,`differential`costs`can`be`either`va
riable`or`fixed.`For`example,`the`alternatives`
might`consist`of`purchasing`one`machine`rath
er`than`another`to`make`a`product.`The`differ
ence`between`the`fixed`costs`of`purchasing`t
he`two`machines`is`a`differential`cost.
©`McGraw`Hill`LLC.`All`rights`reserved.`No`reproduction`or`distribution`without`the`prior`written`cons
ent`of`McGraw`Hill`LLC.
Managerial`Accounting`18th`Edition,`Solutions`Manual,`Chapter`
1
Solutions for Managerial Accounting, 18th Edition by Ray
Garrison
Managerial`Accounting`18th`Edition,`Solutions`Manual,`Chapter` 1
1
,Chapter 1 `
Managerial Accounting and Cost Concepts
` ` ` ` `
Questions
1-1 The`three`major`types`of`product`cos 1-4
ts`in`a`manufacturing`company`are`direct`ma a. Variable`cost:`The`variable`cost`per`unit`i
terials,`direct`labor,`and`manufacturing`overh s`constant,`but`total`variable`cost`change
ead. s`in`direct`proportion`to`changes`in`volu
me.
1-2 b. Fixed`cost:`The`total`fixed`cost`is`constant
a. Direct`materials`are`an`integral`part`of `within`the`relevant`range.`The`average`fix
`a`finished`product`and`their`costs`can`be`co ed`cost`per`unit`varies`inversely`with`chan
nveniently`traced`to`it. ges` in`volume.
b. Indirect`materials`are`generally`small`ite c. Mixed`cost:`A`mixed`cost`contains`bot
ms`of`material`such`as`glue`and`nails.`They`m h`variable`and`fixed`cost`elements.
ay`be`an`integral`part`of`a`finished`product`bu
t`their`costs`can`be`traced`to`the`product`only 1-5
`at`great`cost`or`inconvenience. a. Unit`fixed`costs`decrease`as`the`activity`lev
c. Direct`labor`consists`of`labor`costs`th el`increases.
at`can`be`easily`traced`to`particular`product b. Unit`variable`costs`remain`constant`as`th
s. e`activity`level`increases.
Direct`labor`is`also`called`―touch`labor.‖ c. Total`fixed`costs`remain`constant`as`t
d. Indirect`labor`consists`of`the`labor`cost he`activity`level`increases.
s`of`janitors,`supervisors,`materials`handlers,` d. Total`variable`costs`increase`as`the`activi
and`other`factory`workers`that`cannot`be`con ty`level`increases.
veniently`traced`to`particular`products.`These
`labor`costs`are`incurred`to`support`productio 1-6
n,`but`the`workers`involved`do`not`directly`w a. Cost`behavior:`Cost`behavior`refers`to`th
ork`on`the`product. e`way`in`which`costs`change`in`response
e. Manufacturing`overhead`includes`all`ma `to`changes`in`a`measure`of`activity`suc
nufacturing`costs`except`direct`materials`and` h`as`sales`volume,`production`volume,`or
direct`labor.`Consequently,`manufacturing`over `orders`processed.
head`includes`indirect`materials`and`indirect`la b. Relevant`range:`The`relevant`range`is`th
bor`as`well`as`other`manufacturing`costs. e`range`of`activity`within`which`assumpti
ons`about`variable`and`fixed`cost`behavi
1-3 or`are`valid.
A`product`cost`is`any`cost`involved`in`
purchasing`or`manufacturing`goods.`In`the`ca 1-7 An`activity`base`is`a`measure`of`w
se`of`manufactured`goods,`these`costs`consist hatever`causes`the`incurrence`of`a`variable
`of`direct`materials,`direct`labor,`and`manufact `cost.`Examples`of`activity`bases`include`un
uring`overhead.`A`period`cost`is`a`cost`that`is its`produced,`units`sold,`letters`typed,`beds
`taken`directly`to`the`income`statement`as`an `in`a`hospital,`meals`served`in`a`cafe,`servi
`expense`in`the`period`in`which`it`is`incurred. ce`calls`made,`etc.
1-8 The`linear`assumption`is`reasonably`va
lid`providing`that`the`cost`formula`is`used`only
`within`the`relevant`range.
Managerial`Accounting`18th`Edition,`Solutions`Manual,`Chapter` 1
1
,©`McGraw`Hill`LLC.`All`rights`reserved.`No`reproduction`or`distribution`without`the`prior`written`cons
ent`of`McGraw`Hill`LLC.
Managerial`Accounting`18th`Edition,`Solutions`Manual,`Chapter` 1
1
, 1-9 A`discretionary`fixed`cost`has`a`fairl 1-11 The`traditional`approach`organizes`cost
y`short`planning`horizon— s`by`function,`such`as`production,`selling,`and
usually`a`year.`Such`costs`arise`from`annual `administration.`Within`a`functional`area,`fixed
`decisions`by`management`to`spend`on`cert `and`variable`costs`are`intermingled.`The`cont
ain`fixed`cost`items,`such`as`advertising,`re ribution`approach`income`statement`organizes
search,`and`management`development.`A`co `costs`by`behavior,`first`deducting`variable`ex
mmitted`fixed`cost`has`a`long`planning`hori penses`to`obtain`contribution`margin,`and`then
zon— `deducting`fixed`expenses`to`obtain`net`operat
generally`many`years.`Such`costs`relate`to` ing`income.
a`company’s`investment`in`facilities,`equipm
ent,`and`basic`organization.`Once`such`cost 1-12 The`contribution`margin`is`total`sale
s`have`been`incurred,`they`are`―locked`in‖`f s`revenue`less`total`variable`expenses.
or`many`years.
1-13 A`differential`cost`is`a`cost`that`differs
1-10 Yes.`As`the`anticipated`level`of`activity `between`alternatives`in`a`decision.`A`sunk`co
`changes,`the`level`of`fixed`costs`needed`to`s st` is`a`cost`that`has`already`been`incurred`an
upport`operations`may`also`change.`Most`fixe d`cannot`be`altered`by`any`decision`taken`no
d`costs`are`adjusted`upward`and`downward`in w`or`in`the`future.`An`opportunity`cost`is`the`
`large`steps,`rather`than`being`absolutely`fixed potential`benefit`that`is`given`up`when`one`alt
`at`one`level`for`all`ranges`of`activity. ernative`is`selected`over`another.
1-14 No,`differential`costs`can`be`either`va
riable`or`fixed.`For`example,`the`alternatives`
might`consist`of`purchasing`one`machine`rath
er`than`another`to`make`a`product.`The`differ
ence`between`the`fixed`costs`of`purchasing`t
he`two`machines`is`a`differential`cost.
©`McGraw`Hill`LLC.`All`rights`reserved.`No`reproduction`or`distribution`without`the`prior`written`cons
ent`of`McGraw`Hill`LLC.
Managerial`Accounting`18th`Edition,`Solutions`Manual,`Chapter`
1
