SOLUTION MANUAL FOR MANAGERIAL
ACCOUNTING 18TH EDITION BY RAY
GARRISON ALL CHAPTERS COVERED
GRADED A+ NEWEST VERSION.
Chapter 1
Managerial Accounting and Cost Concepts
Questions
their costs can be traced to the product only at
1-1 The three major types of product costs great cost or inconvenience.
in a manufacturing company are direct c. Direct labor consists of labor costs that
materials, direct labor, and manufacturing can be easily traced to particular products.
overhead. Direct labor is also called ―touch labor.‖
d. Indirect labor consists of the labor costs of
1-2 janitors, supervisors, materials handlers, and other
a. Direct materials are an integral part of a factory workers that cannot be conveniently traced
finished product and their costs can be to particular products. These labor costs are
conveniently traced to it. incurred to support production, but the workers
b. Indirect materials are generally small involved do not directly work on the product.
items of material such as glue and nails. They e. Manufacturing overhead includes all
may be an integral part of a finished product but manufacturing costs except direct materials and
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 1
,direct labor. Consequently, manufacturing
overhead includes indirect materials and indirect 1-4
labor as well as other manufacturing costs. a. Variable cost: The variable cost per unit is
constant, but total variable cost changes in
1-3 A product cost is any cost involved in direct proportion to changes in volume.
purchasing or manufacturing goods. In the case b. Fixed cost: The total fixed cost is constant
of manufactured goods, these costs consist of within the relevant range. The average fixed
direct materials, direct labor, and manufacturing cost per unit varies inversely with changes
overhead. A period cost is a cost that is taken in volume.
directly to the income statement as an expense c. Mixed cost: A mixed cost contains both
in the period in which it is incurred. variable and fixed cost elements.
1-5
a. Unit fixed costs decrease as the activity level
increases.
b. Unit variable costs remain constant as the
activity level increases.
c. Total fixed costs remain constant as the
activity level increases.
d. Total variable costs increase as the activity
level increases.
1-6
a. Cost behavior: Cost behavior refers to the
way in which costs change in response to
changes in a measure of activity such as
sales volume, production volume, or orders
processed.
b. Relevant range: The relevant range is the
range of activity within which assumptions
about variable and fixed cost behavior are
valid.
1-7 An activity base is a measure of
whatever causes the incurrence of a variable
cost. Examples of 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 1-11 The traditional approach organizes costs
short planning horizon—usually a year. Such by function, such as production, selling, and
costs arise from annual decisions by administration. Within a functional area, fixed
management to spend on certain fixed cost and variable costs are intermingled. The
items, such as advertising, research, and contribution approach income statement
management development. A committed fixed organizes costs by behavior, first deducting
cost has a long planning horizon—generally variable expenses to obtain contribution margin,
many years. Such costs relate to a company’s and then deducting fixed expenses to obtain net
investment in facilities, equipment, and basic operating income.
organization. Once such costs have been
incurred, they are ―locked in‖ for many years. 1-12 The contribution margin is total sales
revenue less total variable expenses.
1-10 Yes. As the anticipated level of activity
changes, the level of fixed costs needed to 1-13 A differential cost is a cost that differs
support operations may also change. Most fixed between alternatives in a decision. A sunk cost
costs are adjusted upward and downward in is a cost that has already been incurred and
large steps, rather than being absolutely fixed at cannot be altered by any decision taken now or
one level for all ranges of activity. in the future. An opportunity cost is 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, Chapter 1 3
,
ACCOUNTING 18TH EDITION BY RAY
GARRISON ALL CHAPTERS COVERED
GRADED A+ NEWEST VERSION.
Chapter 1
Managerial Accounting and Cost Concepts
Questions
their costs can be traced to the product only at
1-1 The three major types of product costs great cost or inconvenience.
in a manufacturing company are direct c. Direct labor consists of labor costs that
materials, direct labor, and manufacturing can be easily traced to particular products.
overhead. Direct labor is also called ―touch labor.‖
d. Indirect labor consists of the labor costs of
1-2 janitors, supervisors, materials handlers, and other
a. Direct materials are an integral part of a factory workers that cannot be conveniently traced
finished product and their costs can be to particular products. These labor costs are
conveniently traced to it. incurred to support production, but the workers
b. Indirect materials are generally small involved do not directly work on the product.
items of material such as glue and nails. They e. Manufacturing overhead includes all
may be an integral part of a finished product but manufacturing costs except direct materials and
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 1
,direct labor. Consequently, manufacturing
overhead includes indirect materials and indirect 1-4
labor as well as other manufacturing costs. a. Variable cost: The variable cost per unit is
constant, but total variable cost changes in
1-3 A product cost is any cost involved in direct proportion to changes in volume.
purchasing or manufacturing goods. In the case b. Fixed cost: The total fixed cost is constant
of manufactured goods, these costs consist of within the relevant range. The average fixed
direct materials, direct labor, and manufacturing cost per unit varies inversely with changes
overhead. A period cost is a cost that is taken in volume.
directly to the income statement as an expense c. Mixed cost: A mixed cost contains both
in the period in which it is incurred. variable and fixed cost elements.
1-5
a. Unit fixed costs decrease as the activity level
increases.
b. Unit variable costs remain constant as the
activity level increases.
c. Total fixed costs remain constant as the
activity level increases.
d. Total variable costs increase as the activity
level increases.
1-6
a. Cost behavior: Cost behavior refers to the
way in which costs change in response to
changes in a measure of activity such as
sales volume, production volume, or orders
processed.
b. Relevant range: The relevant range is the
range of activity within which assumptions
about variable and fixed cost behavior are
valid.
1-7 An activity base is a measure of
whatever causes the incurrence of a variable
cost. Examples of 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 1-11 The traditional approach organizes costs
short planning horizon—usually a year. Such by function, such as production, selling, and
costs arise from annual decisions by administration. Within a functional area, fixed
management to spend on certain fixed cost and variable costs are intermingled. The
items, such as advertising, research, and contribution approach income statement
management development. A committed fixed organizes costs by behavior, first deducting
cost has a long planning horizon—generally variable expenses to obtain contribution margin,
many years. Such costs relate to a company’s and then deducting fixed expenses to obtain net
investment in facilities, equipment, and basic operating income.
organization. Once such costs have been
incurred, they are ―locked in‖ for many years. 1-12 The contribution margin is total sales
revenue less total variable expenses.
1-10 Yes. As the anticipated level of activity
changes, the level of fixed costs needed to 1-13 A differential cost is a cost that differs
support operations may also change. Most fixed between alternatives in a decision. A sunk cost
costs are adjusted upward and downward in is a cost that has already been incurred and
large steps, rather than being absolutely fixed at cannot be altered by any decision taken now or
one level for all ranges of activity. in the future. An opportunity cost is 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, Chapter 1 3
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