Managerial 10e – Chapter 1 – Solutions Manual
Solutions Manual for Fundamental Managerial Accounting Concepts 10th Edition by Thomas P. Edmonds, Christopher T.
Edmonds, and Mark A. Edmonds (Chapters 1-14 Complete
,ANSWERS TO QUESTIONS - CHAPTER 1
1. Financial accounting deals with regulated, historical, financial information that pertains to the whole company
and is designed primarily to meet the information needs of outsiders. Managerial accounting is concerned with
unregulated financial, economic, and nonfinancial data, which pertains more to the sub-units of the organization,
that is current and future oriented, and that is designed primarily to meet the information needs of insiders.
2. The value-added principle means that management accountants are free to engage in any information gathering and
reporting activity so long as the activity adds value in excess of its cost. Estimates of future product costs are
permissible in managerial accounting reports for budgeting and product costing but would not be allowed by financial
regulations in financial accounting.
3. The two dimensions of the TQM program are: (1) management should follow a
continuous, systematic problem-solving philosophy that encourages achievement of zero
defects in production and engages all employees to eliminate waste and errors and to simplify the
design and delivery of products and services to customers, and (2) organizations need a strong commitment to
customer satisfaction. TQM is being used in business to maintain profitability in an increasingly competitive global
market. In this environment, profit margins are tight, and therefore, inefficiencies can more easily erode
business profits. To eliminate waste, errors, and dissatisfied customers, information must be timely and relevant
in order to prevent or discover and correct mistakes immediately.
1-b-1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Managerial 10e – Chapter 1 – Solutions Manual
4. Both financial and managerial accountants need cost information about the company’s products and
services. In managerial accounting cost information is useful in product pricing decisions and is an essential part
of cost control (comparing actual product cost to budgeted product cost to assess needed improvement) and
performance evaluation (assess managers’ success in controlling and eliminating unnecessary cost). In financial
accounting, cost information about the product is needed to determine ending inventory on the balance sheet
and cost of goods sold on the income statement. Product costing in financial accounting can impact the decisions of not
only managers but also outsiders such as investors, creditors, and taxing authorities. Product costing information in
managerial accounting can affect the product’s selling price as well as management’s decisions as to whether cost
correction changes are needed.
5. Costs are assets used in the process of earning revenue but not all costs of the earning process are used in the same
period in which they are incurred. Therefore, a cost that is used in the process of earning revenue is recorded as
an expense (e.g. administrative salaries and product cost for products sold) and a cost that has future benefit in the earning
process is recorded as an asset in the period that it is incurred.
6. The cash paid to production workers has not been used to produce revenue but to produce inventory. The
revenue is earned when the inventory is sold at which time the cost of salaries associated with those products sold should
be expensed as cost of goods sold.
1-b-2
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Managerial 10e – Chapter 1 – Solutions Manual
7. Product costs associated with goods that have not been sold are recorded in the account called inventory.
Inventory cost is shown on the balance sheet as an asset. The amount of total assets and net income will be higher if a
product cost is classified as an asset than if it is expensed. Product cost associated with goods that have been sold should
be recorded in the account called cost of goods sold. Cost of goods sold is an expense shown on the income
statement. The amount of total assets and net income will be lower if a product cost is classified as an expense as
opposed to being classified as an asset.
8. An indirect product cost cannot be easily or economically traced to a specific product. Product costs that would be
considered indirect include costs such as production supplies, salaries of production supervisors, and depreciation,
rent, and utilities on factory facilities.
9. Product costs are all costs incurred to obtain a product or provide a service. These costs are treated as
assets, recorded in inventory, and expensed when the associated products are sold. Period costs are all costs not
associated with a product. They are associated with the general, selling, and administrative functions of the business and
most are expensed in the period in which the associated economic sacrifice is made. A product cost would be the cost of
direct materials used in the production of a product. A period cost would be rent on administrative facilities.
1-b-3
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Solutions Manual for Fundamental Managerial Accounting Concepts 10th Edition by Thomas P. Edmonds, Christopher T.
Edmonds, and Mark A. Edmonds (Chapters 1-14 Complete
,ANSWERS TO QUESTIONS - CHAPTER 1
1. Financial accounting deals with regulated, historical, financial information that pertains to the whole company
and is designed primarily to meet the information needs of outsiders. Managerial accounting is concerned with
unregulated financial, economic, and nonfinancial data, which pertains more to the sub-units of the organization,
that is current and future oriented, and that is designed primarily to meet the information needs of insiders.
2. The value-added principle means that management accountants are free to engage in any information gathering and
reporting activity so long as the activity adds value in excess of its cost. Estimates of future product costs are
permissible in managerial accounting reports for budgeting and product costing but would not be allowed by financial
regulations in financial accounting.
3. The two dimensions of the TQM program are: (1) management should follow a
continuous, systematic problem-solving philosophy that encourages achievement of zero
defects in production and engages all employees to eliminate waste and errors and to simplify the
design and delivery of products and services to customers, and (2) organizations need a strong commitment to
customer satisfaction. TQM is being used in business to maintain profitability in an increasingly competitive global
market. In this environment, profit margins are tight, and therefore, inefficiencies can more easily erode
business profits. To eliminate waste, errors, and dissatisfied customers, information must be timely and relevant
in order to prevent or discover and correct mistakes immediately.
1-b-1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Managerial 10e – Chapter 1 – Solutions Manual
4. Both financial and managerial accountants need cost information about the company’s products and
services. In managerial accounting cost information is useful in product pricing decisions and is an essential part
of cost control (comparing actual product cost to budgeted product cost to assess needed improvement) and
performance evaluation (assess managers’ success in controlling and eliminating unnecessary cost). In financial
accounting, cost information about the product is needed to determine ending inventory on the balance sheet
and cost of goods sold on the income statement. Product costing in financial accounting can impact the decisions of not
only managers but also outsiders such as investors, creditors, and taxing authorities. Product costing information in
managerial accounting can affect the product’s selling price as well as management’s decisions as to whether cost
correction changes are needed.
5. Costs are assets used in the process of earning revenue but not all costs of the earning process are used in the same
period in which they are incurred. Therefore, a cost that is used in the process of earning revenue is recorded as
an expense (e.g. administrative salaries and product cost for products sold) and a cost that has future benefit in the earning
process is recorded as an asset in the period that it is incurred.
6. The cash paid to production workers has not been used to produce revenue but to produce inventory. The
revenue is earned when the inventory is sold at which time the cost of salaries associated with those products sold should
be expensed as cost of goods sold.
1-b-2
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Managerial 10e – Chapter 1 – Solutions Manual
7. Product costs associated with goods that have not been sold are recorded in the account called inventory.
Inventory cost is shown on the balance sheet as an asset. The amount of total assets and net income will be higher if a
product cost is classified as an asset than if it is expensed. Product cost associated with goods that have been sold should
be recorded in the account called cost of goods sold. Cost of goods sold is an expense shown on the income
statement. The amount of total assets and net income will be lower if a product cost is classified as an expense as
opposed to being classified as an asset.
8. An indirect product cost cannot be easily or economically traced to a specific product. Product costs that would be
considered indirect include costs such as production supplies, salaries of production supervisors, and depreciation,
rent, and utilities on factory facilities.
9. Product costs are all costs incurred to obtain a product or provide a service. These costs are treated as
assets, recorded in inventory, and expensed when the associated products are sold. Period costs are all costs not
associated with a product. They are associated with the general, selling, and administrative functions of the business and
most are expensed in the period in which the associated economic sacrifice is made. A product cost would be the cost of
direct materials used in the production of a product. A period cost would be rent on administrative facilities.
1-b-3
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
