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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2Managerial Accounting, 17th edition1-9A discretionary fixed cost has a fairlyshort planning horizon—usually a year. Suchcosts arise from annual decisions bymanagement to spend on certain fixed costitems, such as advertising, research, andmanagement development. A committed fixedcost has a long planning horizon—generallymany years. Such costs relate to a company’sinvestment in facilities, equipment, and basicorganization. Once such costs have beenincurred, they are “locked in” for many years.1-10Yes. As the anticipated level of activitychanges, the level of fixed costs needed tosupport operations may also change. Most fixedcosts are adjusted upward and downward inlarge steps, rather than being absolutely fixed atone level for all ranges of activity.1-11The traditional approach organizes costsby function, such as production, selling, andadministration. Within a functional area, fixedand variable costs are intermingled. Thecontribution approach income statementorganizes costs by behavior, first deductingvariable expenses to obtain contribution margin,and then deducting fixed expenses to obtain netoperating income.1-12The contribution margin is total salesrevenue less total variable expenses.1-13A differential cost is a cost that differsbetween alternatives in a decision. Anopportunity cost is the potential benefit that isgiven up when one alternative is selected overanother. A sunk cost is a cost that has alreadybeen incurred and cannot be altered by anydecision taken now or in the future.1-14No, differential costs can be eithervariable or fixed. For example, the alternativesmight consist of purchasing one machine ratherthan another to make a product. The differencebetween the fixed costs of purchasing the twomachines is a differential cost.

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Solutions Manual, Chapter 13Chapter 1: Applying ExcelThe completed worksheet is shown below.

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4Managerial Accounting, 17th editionChapter 1: Applying Excel(continued)The completed worksheet, with formulas displayed, is shown below.[Note:To display formulas in cells instead of their calculated amounts,consult Excel Help.]

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Solutions Manual, Chapter 15Chapter 1: Applying Excel(continued)1.When the variable selling cost is changed to $900, the worksheetchanges as show below:The gross margin is $6,000; the same as it was before. It did notchange because the variable selling expense is deductedafterthe grossmargin, not before it on the traditional format income statement.

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6Managerial Accounting, 17th editionChapter 1: Applying Excel(continued)2.The new worksheet appears below:

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Solutions Manual, Chapter 17Chapter 1: Applying Excel(continued)The variable costs increased by 10% when the sales increased by 10%,however the fixed costs did not increase at all. By definition, totalvariable cost increases in proportion to activity whereas total fixed costis constant. (In the real world, cost behavior may be messier.)The contribution margin also increased by 10%, from $5,000 to $5,500,because both of its components—sales and variable costs—increased by10%.The net operating income increased by more than 10%, from $1,000to$1,500, because even though sales and variable expenses increased by10%, the fixed costs did not increase by 10%.

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8Managerial Accounting, 17th editionThe Foundational 151.Direct materials...........................................$6.00Direct labor.................................................3.50Variable manufacturing overhead.................1.50Variable manufacturing cost per unit............$11.00Variable manufacturing cost per unit (a).......$11.00Number of units produced (b)......................10,000Total variable manufacturing cost (a) × (b)...$110,000Average fixed manufacturing overhead perunit (c)....................................................$4.00Number of units produced (d)......................10,000Total fixed manufacturing cost (c) × (d).......40,000Total product (manufacturing) cost...............$150,000Note: The average fixedmanufacturing overhead cost per unit of $4.00is valid for only one level of activity—10,000 units produced.2.Sales commissions......................................$1.00Variable administrative expense...................0.50Variable selling and administrative per unit...$1.50Variable selling and admin. per unit (a)........$1.50Number of units sold (b)..............................10,000Total variable selling and admin. expense(a) × (b)...............................................$15,000Average fixed selling and administrativeexpense per unit ($3 fixed selling + $2fixed admin.) (c).......................................$5.00Number of units sold (d)..............................10,000Total fixed selling and administrativeexpense (c) × (d).....................................50,000Total period (nonmanufacturing) cost...........$65,000Note: The average fixed selling and administrative expense per unit of$5.00 isvalid for only one level of activity—10,000 units sold.

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Solutions Manual, Chapter 19The Foundational 15(continued)3.Direct materials.......................................$6.00Direct labor.............................................3.50Variable manufacturing overhead.............1.50Sales commissions...................................1.00Variableadministrative expense...............0.50Variable cost per unit sold........................$12.504.Direct materials.......................................$6.00Direct labor.............................................3.50Variable manufacturing overhead.............1.50Sales commissions...................................1.00Variable administrative expense...............0.50Variable cost perunit sold........................$12.505.Variable cost per unit sold (a)..................$12.50Number of units sold (b)..........................8,000Total variable costs (a) × (b)....................$100,0006.Variable cost per unit sold (a)..................$12.50Number of units sold (b)..........................12,500Total variable costs (a) ×(b)....................$156,2507.Total fixed manufacturing cost(see requirement 1) (a).........................$40,000Number of units produced (b)..................8,000Average fixed manufacturing cost per unitproduced (a) ÷ (b)...............................$5.008.Total fixed manufacturing cost(seerequirement 1) (a).........................$40,000Number of units produced (b)..................12,500Average fixed manufacturing cost per unitproduced (a) ÷ (b)...............................$3.209.Total fixed manufacturing cost(see requirement 1)..............................$40,000

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10Managerial Accounting, 17th editionThe Foundational 15(continued)10.Total fixed manufacturing cost(see requirement 1)................................$40,00011.Variable overhead per unit (a).....................$1.50Number of units produced (b).....................8,000Total variable overhead cost (a) × (b).........$12,000Total fixedoverhead (see requirement 1).....40,000Total manufacturing overhead cost..............$52,000Total manufacturing overhead cost (a).........$52,000Number of units produced (b).....................8,000Manufacturing overhead per unit (a)÷(b)...$6.5012.Variableoverhead per unit (a).....................$1.50Number of units produced (b).....................12,500Total variable overhead cost (a) × (b).........$18,750Total fixed overhead (see requirement 1).....40,000Total manufacturing overhead cost..............$58,750Totalmanufacturing overhead cost (a).........$58,750Number of units produced (b).....................12,500Manufacturing overhead per unit (a)÷(b)...$4.7013.Selling price per unit...................................$22.00Variable cost per unit sold(see requirement 4).................................12.50Contribution margin per unit.......................$9.50

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Solutions Manual, Chapter 111The Foundational 15(continued)14.Direct materials per unit.............................$6.00Direct labor per unit...................................3.50Direct manufacturing cost per unit..............$9.50Direct manufacturing cost per unit (a)$9.50Number of units produced (b).....................11,000Total direct manufacturing cost (a) × (b).....$104,500Variable overhead per unit (a).....................$1.50Number of units produced (b).....................11,000Total variable overheadcost (a) × (b).........$16,500Total fixed overhead (see requirement 1).....40,000Total indirect manufacturing cost.................$56,50015.Direct materials per unit.............................$6.00Direct labor per unit...................................3.50Variable manufacturing overhead per unit....1.50Incremental cost per unitproduced.............$11.00Note:Variable selling and administrative expenses are variable withrespect to the number of units sold, not the number of units produced.

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12Managerial Accounting, 17th editionExercise1-1(15 minutes)CostCost ObjectDirectCostIndirectCost1.The wages of pediatricnursesThepediatricdepartmentX2.Prescription drugsA particular patientX3.Heating the hospitalThe pediatricdepartmentX4.The salary of the headof pediatricsThe pediatricdepartmentX5.The salary of the headof pediatricsA particularpediatricpatientX6.Hospital chaplain’ssalaryA particular patientX7.Lab tests by outsidecontractorA particular patientX8.Lab tests by outsidecontractorA particulardepartmentX

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Solutions Manual, Chapter 113Exercise1-2(10 minutes)1.The cost of a harddrive installed in a computer: direct materials.2.The cost of advertising in thePuget Sound Computer Usernewspaper:selling.3.The wages of employees who assemble computers from components:direct labor.4.Sales commissions paid to thecompany’s salespeople: selling.5.Thesalaryof the assembly shop’s supervisor: manufacturing overhead.6.The salaryof the company’s accountant: administrative.7.Depreciation on equipment used to test assembled computers beforerelease to customers: manufacturing overhead.8.Rent on the facility in the industrial park: a combination ofmanufacturing overhead, selling, and administrative. The rent wouldmost likely be prorated on the basis of the amount of space occupied bymanufacturing, selling, and administrative operations.

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14Managerial Accounting, 17th editionExercise1-3(15 minutes)ProductCostPeriodCost1.Depreciation on salespersons’ cars........................X2.Rent on equipment used in the factory..................X3.Lubricants used for machine maintenance.............X4.Salaries ofpersonnel who work in the finishedgoods warehouse..............................................X5.Soap and paper towels used by factory workers atthe end of a shift...............................................X6.Factory supervisors’ salaries..................................X7.Heat, water, and power consumed in the factory...X8.Materials used forboxing products for shipmentoverseas (units are not normally boxed).............X9.Advertising costs..................................................X10.Workers’ compensation insurance for factoryemployees.........................................................X11.Depreciation on chairs and tables in the factorylunchroom.........................................................X12.The wages of thereceptionist in the administrativeoffices...............................................................X13.Cost of leasing the corporate jet used by thecompany's executives........................................X14.The cost of renting rooms at a Florida resort for theannual sales conference.....................................X15.The cost of packaging thecompany’s product........X

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Solutions Manual, Chapter 115Exercise1-4(15 minutes)1.Cups of Coffee Servedin a Week2,0002,1002,200Fixed cost.................................$1,200$1,200$1,200Variable cost.............................440462484Total cost.................................$1,640$1,662$1,684Average cost per cup served *...$0.820$0.791$0.765* Total cost÷cups of coffee served in a week2.The average cost of a cup of coffee decreasesas the number of cups ofcoffee served increases because the fixed cost is spread over more cupsof coffee.

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