MANAGEMENT ACCOUNTING - Solutions ManualCHAPTER 7COST CONCEPTS AND CLASSIFICATIONSI.

Questions1.The phrase “different costs for different purposes” refers to the fact thatthe word “cost” can have different meanings depending on the context inwhich it is used. Cost data that are classified and recorded in a particularway for one purpose may be inappropriate for another use.2.Fixed costs remain constant in total across changes in activity, whereasvariable costs change in proportion to the level of activity.3.Examples of direct costs of the food and beverage department in a hotelinclude the money spent on the food and beverages served, the wages oftable service personnel, and the costs of entertainment in the dining roomand lounge. Examples of indirect costs of the food and beveragedepartment include allocations of the costs of advertising for the entirehotel, of the costs of the grounds and maintenance department, and of thehotel general manager’s salary.4.The cost of idle time is treated as manufacturing overhead because it is anormal cost of the manufacturing operation that should be spread outamong all of the manufactured products. The alternative to this treatmentwould be to charge the cost of idle time to a particular job that happens tobe in process when the idle time occurs. Idle time often results from arandom event, such as a power outage. Charging the cost of the idle timeresulting from such a random event to only the job that happened to be inprocess at the time would overstate the cost of that job.5.a.Uncontrollable costb.Controllable costc.Uncontrollable cost6.Product costs are costs tha