Solution Manual For Managerial Accounting, 17th Edition

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Solutions Manual, Chapter 11Chapter1ManagerialAccounting and Cost ConceptsQuestions1-1The three major types of product costsin a manufacturing company are directmaterials, direct labor, and manufacturingoverhead.1-2a.Direct materials are an integral part of afinished product and their costs can beconveniently traced to it.b.Indirect materials are generally smallitems of material such as glue and nails. Theymay be an integral part of a finished product buttheir costs can be traced to the product only atgreat cost or inconvenience.c.Direct labor consists of labor costs thatcan be easily traced to particular products.Direct labor is also called “touch labor.”d.Indirect labor consists of the labor costsof janitors, supervisors, materials handlers, andother factory workers that cannot beconveniently traced to particular products.These labor costs are incurred to supportproduction, but the workers involved do notdirectly work on the product.e.Manufacturing overhead includes allmanufacturing costs except direct materials anddirect labor. Consequently, manufacturingoverhead includes indirect materials and indirectlabor as well as other manufacturing costs.1-3A product cost is any cost involved inpurchasing or manufacturing goods. In the caseof manufactured goods, these costs consist ofdirect materials, direct labor, and manufacturingoverhead. A period cost is a cost that is takendirectly to the income statement as an expensein the period in which it is incurred.1-4a.Variable cost: The variable cost per unit isconstant, but total variable cost changes indirect proportion to changes in volume.b.Fixed cost: The total fixed cost is constantwithin the relevant range. Theaverage fixedcost per unit varies inversely with changesin volume.c.Mixed cost: A mixed cost contains bothvariable and fixed cost elements.1-5a.Unit fixed costs decrease as the activity levelincreases.b.Unit variable costs remain constant as theactivity level increases.c.Total fixed costs remain constant as theactivity level increases.d.Total variable costs increase as the activitylevel increases.1-6a.Cost behavior: Cost behavior refers to theway in which costs change in response tochanges in a measure of activity such assales volume, production volume, or ordersprocessed.b.Relevant range: The relevant range is therange of activity within which assumptionsabout variable and fixed cost behavior arevalid.1-7An activity base is a measure ofwhatever causes the incurrence of a variablecost. Examples of activity bases include unitsproduced, units sold, letters typed, beds in ahospital, meals served in a cafe, service callsmade, etc.1-8The linear assumption is reasonablyvalid providing that the cost formula is used onlywithin the relevant range.

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