Chapter 1 m
Managerial Accounting and Cost Concepts
m m m m m
Questions
1-1 Themthreemmajor mtypesmofmproductmcost 1-4
sminmammanufacturingmcompany maremdirectmmat a. Variablemcost: mThemvariablemcostmpermunitmi
erials,mdirectmlabor,mandmmanufacturingmoverhe smconstant,mbutmtotalmvariablemcostmchange
ad. sminmdirectmproportionmtomchangesminmvolu
me.
1-2 b. Fixedmcost: mThemtotalmfixedmcostmismconstant
a. Directmmaterialsmaremanmintegralmpartmofm mwithinmthemrelevantmrange.mThe maveragemfix
amfinishedmproductmandmtheir mcostsmcanmbemcon edmcostmpermunitmvariesminversely mwithmchan
veniently mtracedmtomit. gesm inmvolume.
b. Indirectmmaterialsmaremgenerally msmallmite c. Mixedmcost: mAmmixedmcostmcontainsmbot
msmofmmaterialmsuchmasmgluemandmnails.mThey mm hmvariablemandmfixedmcostmelements.
ay mbemanmintegralmpartmofmamfinishedmproductmbut
mtheir mcosts mcanmbemtracedmtomthemproductmonly m 1-5
atmgreatmcostmorminconvenience. a. Unitmfixedmcostsmdecreasemasmthemactivity mlev
c. Directmlabor mconsistsmofmlabormcostsmth elmincreases.
atmcanmbemeasily mtracedmtomparticular mproduct b. Unitmvariablemcostsmremainmconstantmasmth
s. emactivity mlevelmincreases.
Directmlabormismalsomcalledm―touchmlabor.‖ c. Totalmfixedmcostsmremainmconstantmasmth
d. Indirectmlabormconsistsmofmthemlabormcost emactivity mlevelmincreases.
smofmjanitors,msupervisors,mmaterialsmhandlers,m d. Totalmvariablemcostsmincreasemasmthemactivit
andmothermfactory mworkersmthatmcannotmbemcon y mlevelmincreases.
veniently mtracedmtomparticular mproducts.mThesem
labormcostsmaremincurredmtomsupportmproduction 1-6
,mbutmthemworkersminvolvedmdomnotmdirectly mwor a. Costmbehavior: mCostmbehavior mrefersmtomth
k monmthemproduct. emway minmwhichmcostsmchangeminmresponse
e. Manufacturingmoverheadmincludesmallmma mtomchanges minmammeasure mofmactivity msuch
nufacturingmcostsmexceptmdirectmmaterialsmandmd masmsales mvolume,mproductionmvolume,mor mo
irectmlabor.mConsequently,mmanufacturingmoverh rdersmprocessed.
eadmincludesmindirectmmaterialsmandmindirectmlab b. Relevantmrange: mThemrelevantmrangemismth
ormasmwellmasmothermmanufacturingmcosts. emrangemofmactivity mwithinmwhichmassumpti
onsmaboutmvariablemandmfixedmcostmbehavi
1-3 ormaremvalid.
Amproductmcostmismany mcostminvolvedminm
purchasingmormmanufacturingmgoods.mInmthemcas 1-7 Anmactivity mbasemismammeasuremofmw
emofmmanufacturedmgoods,mthesemcostsmconsistm hatever mcausesmthemincurrencemofmamvariable
ofmdirectmmaterials,mdirectmlabor,mandmmanufactu mcost.mExamples mofmactivity mbases minclude mun
ringmoverhead.mAmperiodmcostmismamcostmthatmismt itsmproduced,munitsmsold,mlettersmtyped,mbeds
akenmdirectly mtomthemincomemstatementmasmanme minmamhospital,mmeals mservedminmamcafe,mservi
xpenseminmthemperiodminmwhichmitmismincurred. cemcallsmmade,metc.
1-8 Themlinear massumptionmismreasonably mva
lidmprovidingmthatmthemcostmformulamismusedmonly
mwithinmthemrelevantmrange.
Copyrightm 2021m © m McGraw-
Solutions Manual, Chapter 1 1
,Hillm Education.m Allm rightsmreserved.mNomreproductionmormdistributionm withoutmthempriormwrittenmconsentmofmMcGra
w-Hillm Education.
2 Managerial Accounting, 17th edition
, 1-9 Amdiscretionary mfixedmcostmhasmamfairl 1-11 Themtraditionalmapproachmorganizesmcost
y mshortmplanningmhorizon— smby mfunction,msuchmasmproduction,mselling,mandm
usually mamyear.mSuchmcostsmarisemfrommannual administration.mWithinmamfunctionalmarea,mfixedm
mdecisions mby mmanagementmtomspendmonmcert andmvariablemcostsmaremintermingled.mThemcontri
ainmfixedmcostmitems,msuchmasmadvertising,mres butionmapproachmincomemstatementmorganizesmc
earch,mandmmanagementmdevelopment.mAmco ostsmby mbehavior,mfirstmdeductingmvariablemexpe
mmittedmfixedmcostmhasmamlongmplanningm horiz nsesmtomobtainmcontributionmmargin,mandmthenmd
on— eductingmfixedmexpensesmtomobtainmnetmoperatin
generally mmany myears.mSuchmcostsmrelatemtoma gmincome.
mcompany’s minvestmentminmfacilities,mequipme
nt,mandmbasicmorganization.mOncemsuchmcostsm 1-12 Themcontributionmmarginmismtotalmsale
havembeenmincurred,mthey marem―lockedmin‖mfor smrevenuemlessmtotalmvariablemexpenses.
mmany myears.
1-13 Amdifferentialmcostmismamcostmthatmdiffe
1-10 Yes.mAsmthemanticipatedmlevelmofmactivity rsmbetweenmalternativesminmamdecision.mAnmop
mchanges,mthemlevelmofmfixedmcosts mneededmtoms portunity mcostmismthempotentialmbenefitmthatmism
upportmoperationsmmay malsomchange.mMostmfixed givenmupmwhenmonemalternativemismselectedmov
mcosts mare madjustedmupwardmandmdownwardminml ermanother.mAmsunk mcostmismamcostmthatmhasmalr
argemsteps,mrather mthanmbeingmabsolutely mfixedma eady mbeenmincurredmandmcannotmbemalteredmb
tmonemlevelmformallmrangesmofmactivity. y many mdecisionmtakenmnow morminmthemfuture.
1-14 No,mdifferentialmcostsmcanmbemeither mva
riablemormfixed.mFormexample,mthemalternatives m
mightmconsistmofmpurchasingmonemmachinemrath
ermthanmanother mtommakemamproduct.mThemdiffer
encembetweenmthemfixedmcostsmofmpurchasingmt
hemtwommachinesmismamdifferentialmcost.
Copyrightm 2021m © m McGraw-
Hillm Education.m Allm rightsmreserved.mNomreproduction mormdistributionmwithoutmthempriormwrittenm consentmofm McGra
Solutions Manual, Chapter 1 3
, w-Hillm Education.
4 Managerial Accounting, 17th edition
Managerial Accounting and Cost Concepts
m m m m m
Questions
1-1 Themthreemmajor mtypesmofmproductmcost 1-4
sminmammanufacturingmcompany maremdirectmmat a. Variablemcost: mThemvariablemcostmpermunitmi
erials,mdirectmlabor,mandmmanufacturingmoverhe smconstant,mbutmtotalmvariablemcostmchange
ad. sminmdirectmproportionmtomchangesminmvolu
me.
1-2 b. Fixedmcost: mThemtotalmfixedmcostmismconstant
a. Directmmaterialsmaremanmintegralmpartmofm mwithinmthemrelevantmrange.mThe maveragemfix
amfinishedmproductmandmtheir mcostsmcanmbemcon edmcostmpermunitmvariesminversely mwithmchan
veniently mtracedmtomit. gesm inmvolume.
b. Indirectmmaterialsmaremgenerally msmallmite c. Mixedmcost: mAmmixedmcostmcontainsmbot
msmofmmaterialmsuchmasmgluemandmnails.mThey mm hmvariablemandmfixedmcostmelements.
ay mbemanmintegralmpartmofmamfinishedmproductmbut
mtheir mcosts mcanmbemtracedmtomthemproductmonly m 1-5
atmgreatmcostmorminconvenience. a. Unitmfixedmcostsmdecreasemasmthemactivity mlev
c. Directmlabor mconsistsmofmlabormcostsmth elmincreases.
atmcanmbemeasily mtracedmtomparticular mproduct b. Unitmvariablemcostsmremainmconstantmasmth
s. emactivity mlevelmincreases.
Directmlabormismalsomcalledm―touchmlabor.‖ c. Totalmfixedmcostsmremainmconstantmasmth
d. Indirectmlabormconsistsmofmthemlabormcost emactivity mlevelmincreases.
smofmjanitors,msupervisors,mmaterialsmhandlers,m d. Totalmvariablemcostsmincreasemasmthemactivit
andmothermfactory mworkersmthatmcannotmbemcon y mlevelmincreases.
veniently mtracedmtomparticular mproducts.mThesem
labormcostsmaremincurredmtomsupportmproduction 1-6
,mbutmthemworkersminvolvedmdomnotmdirectly mwor a. Costmbehavior: mCostmbehavior mrefersmtomth
k monmthemproduct. emway minmwhichmcostsmchangeminmresponse
e. Manufacturingmoverheadmincludesmallmma mtomchanges minmammeasure mofmactivity msuch
nufacturingmcostsmexceptmdirectmmaterialsmandmd masmsales mvolume,mproductionmvolume,mor mo
irectmlabor.mConsequently,mmanufacturingmoverh rdersmprocessed.
eadmincludesmindirectmmaterialsmandmindirectmlab b. Relevantmrange: mThemrelevantmrangemismth
ormasmwellmasmothermmanufacturingmcosts. emrangemofmactivity mwithinmwhichmassumpti
onsmaboutmvariablemandmfixedmcostmbehavi
1-3 ormaremvalid.
Amproductmcostmismany mcostminvolvedminm
purchasingmormmanufacturingmgoods.mInmthemcas 1-7 Anmactivity mbasemismammeasuremofmw
emofmmanufacturedmgoods,mthesemcostsmconsistm hatever mcausesmthemincurrencemofmamvariable
ofmdirectmmaterials,mdirectmlabor,mandmmanufactu mcost.mExamples mofmactivity mbases minclude mun
ringmoverhead.mAmperiodmcostmismamcostmthatmismt itsmproduced,munitsmsold,mlettersmtyped,mbeds
akenmdirectly mtomthemincomemstatementmasmanme minmamhospital,mmeals mservedminmamcafe,mservi
xpenseminmthemperiodminmwhichmitmismincurred. cemcallsmmade,metc.
1-8 Themlinear massumptionmismreasonably mva
lidmprovidingmthatmthemcostmformulamismusedmonly
mwithinmthemrelevantmrange.
Copyrightm 2021m © m McGraw-
Solutions Manual, Chapter 1 1
,Hillm Education.m Allm rightsmreserved.mNomreproductionmormdistributionm withoutmthempriormwrittenmconsentmofmMcGra
w-Hillm Education.
2 Managerial Accounting, 17th edition
, 1-9 Amdiscretionary mfixedmcostmhasmamfairl 1-11 Themtraditionalmapproachmorganizesmcost
y mshortmplanningmhorizon— smby mfunction,msuchmasmproduction,mselling,mandm
usually mamyear.mSuchmcostsmarisemfrommannual administration.mWithinmamfunctionalmarea,mfixedm
mdecisions mby mmanagementmtomspendmonmcert andmvariablemcostsmaremintermingled.mThemcontri
ainmfixedmcostmitems,msuchmasmadvertising,mres butionmapproachmincomemstatementmorganizesmc
earch,mandmmanagementmdevelopment.mAmco ostsmby mbehavior,mfirstmdeductingmvariablemexpe
mmittedmfixedmcostmhasmamlongmplanningm horiz nsesmtomobtainmcontributionmmargin,mandmthenmd
on— eductingmfixedmexpensesmtomobtainmnetmoperatin
generally mmany myears.mSuchmcostsmrelatemtoma gmincome.
mcompany’s minvestmentminmfacilities,mequipme
nt,mandmbasicmorganization.mOncemsuchmcostsm 1-12 Themcontributionmmarginmismtotalmsale
havembeenmincurred,mthey marem―lockedmin‖mfor smrevenuemlessmtotalmvariablemexpenses.
mmany myears.
1-13 Amdifferentialmcostmismamcostmthatmdiffe
1-10 Yes.mAsmthemanticipatedmlevelmofmactivity rsmbetweenmalternativesminmamdecision.mAnmop
mchanges,mthemlevelmofmfixedmcosts mneededmtoms portunity mcostmismthempotentialmbenefitmthatmism
upportmoperationsmmay malsomchange.mMostmfixed givenmupmwhenmonemalternativemismselectedmov
mcosts mare madjustedmupwardmandmdownwardminml ermanother.mAmsunk mcostmismamcostmthatmhasmalr
argemsteps,mrather mthanmbeingmabsolutely mfixedma eady mbeenmincurredmandmcannotmbemalteredmb
tmonemlevelmformallmrangesmofmactivity. y many mdecisionmtakenmnow morminmthemfuture.
1-14 No,mdifferentialmcostsmcanmbemeither mva
riablemormfixed.mFormexample,mthemalternatives m
mightmconsistmofmpurchasingmonemmachinemrath
ermthanmanother mtommakemamproduct.mThemdiffer
encembetweenmthemfixedmcostsmofmpurchasingmt
hemtwommachinesmismamdifferentialmcost.
Copyrightm 2021m © m McGraw-
Hillm Education.m Allm rightsmreserved.mNomreproduction mormdistributionmwithoutmthempriormwrittenm consentmofm McGra
Solutions Manual, Chapter 1 3
, w-Hillm Education.
4 Managerial Accounting, 17th edition
