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Solution Manual For Managerial Accounting, 17th Edition

Solution Manual For Managerial Accounting, 17th Edition simplifies difficult concepts with detailed summaries and structured insights.

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    Solutions Manual, Chapter 1 1 Chapter 1 Managerial Accounting and Cost Concepts Questions 1 - 1 The three major types of product costs in a manufacturing company are direct materials, direct labor, and manufacturing overhead. 1 - 2 a. Direct materials are an integral part of a finished product and their costs can be conveniently traced to it. b. Indirect materials are generally small items of material such as glue and nails. They may be an integral part of a finished product but their costs can be traced to the product only at great cost or inconvenience. c. Direct labor consists of labor costs that can be easily traced to particular products. Direct labor is also called “touch labor.” d. Indirect labor consists of the labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products. These labor costs are incurred to support production, but the workers involved do not directly work on the product. e. Manufacturing overhead includes all manufacturing costs except direct materials and direct labor. Consequently, manufacturing overhead includes indirect materials and indirect labor as well as other manufacturing costs. 1 - 3 A product cost is any cost involved in purchasing or manufacturing goods. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. A period cost is a cost that is taken directly to the income statement as an expense in the period in which it is incurred. 1 - 4 a. Variable cost: The variable cost per unit is constant, but total variable cost changes in direct proportion to changes in volume. b. Fixed cost: The total fixed cost is constant within the relevant range. The average fixed cost per unit varies inversely with changes in volume. c. Mixed cost: A mixed cost contains both 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.

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    2 Managerial Accounting, 17th edition 1 - 9 A discretionary fixed cost has a fairly short planning horizon — usually a year. Such costs arise from annual decisions by management to spend on certain fixed cost items, such as advertising, research, and management development. A committed fixed cost has a long planning horizon — generally many years. Such costs relate to a company’s investment in facilities, equipment, and basic organization. Once such costs have been incurred, they are “locked in” for many years. 1 - 10 Yes. As the anticipated level of activity changes, the level of fixed costs needed to support operations may also change. Most fixed costs are adjusted upward and downward in large steps, rather than being absolutely fixed at one level for all ranges of activity. 1 - 1 1 The traditional approach organizes costs by function, such as production, selling, and administration. Within a functional area, fixed and variable costs are intermingled. The contribution approach income statement organizes costs by behavior, first deducting variable expenses to obtain contribution margin, and then deducting fixed expenses to obtain net operating income. 1 - 1 2 The contribution margin is total sales revenue less total variable expenses. 1 - 1 3 A differential cost is a cost that differs between alternatives in a decision. An opportunity cost is the potential benefit that is given up when one alternative is selected over another. A sunk cost is a cost that has already been incurred and cannot be altered by any decision taken now or in the future. 1 - 1 4 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.

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    Solutions Manual, Chapter 1 3 Chapter 1: Applying Excel The completed worksheet is shown below.

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    4 Managerial Accounting, 17th edition Chapter 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 1 5 Chapter 1: Applying Excel (continued) 1. When the variable selling cost is changed to $900, the worksheet changes as show below: The gross margin is $6,000; the same as it was before. It did not change because the variable selling expense is deducted after the gross margin, not before it on the traditional format income statement.

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

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    Solutions Manual, Chapter 1 7 Chapter 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, total variable cost increases in proportion to activity whereas total fixed cost is constant. (In the real world, cost be havior 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 by 10%. The net operating income increased by more than 10%, from $ 1,000 to $1, 500 , because even though sales and variable expenses increased by 10%, the fixed costs did not increase by 10%.

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    8 Managerial Accounting, 17th edition The Foundational 15 1. Direct materials ................................ ........... $ 6.00 Direct labor ................................ ................. 3.50 Variable manufacturing overhead ................. 1.50 Variable manufacturing cost per unit ............ $11.00 Variable manufacturing cost per unit (a) ....... $11.00 Number of units produced (b) ...................... 10,000 Total variable manufacturing cost (a) × (b) ... $110,000 Average f ixed manufacturing overhead per unit (c) ................................ .................... $4.00 Number of units produced (d) ...................... 10,000 Total fixed manufacturing cost (c) × (d) ....... 40,000 Total product (manufacturing) cost ............... $150,000 Note: The average fixed manufacturing overhead cost per unit of $4.00 is valid for only one level of activity — 10,000 units produced. 2. Sales commissions ................................ ...... $1.00 Variable administrative expense ................... 0.50 Variable selling and administrative per unit ... $1. 5 0 Variable selling and admin. per unit (a) ........ $1.50 Number of units sold (b) .............................. 10,000 Total variable selling and admin. expense (a) × (b) ................................ ............... $1 5 ,000 Average f ixed selling and administrative expense per unit ($3 fixed selling + $2 fixed admin.) (c) ................................ ....... $ 5 .00 Number of units sold (d) .............................. 10,000 Total fixed selling and administrative expense (c) × (d) ................................ ..... 5 0,000 Total period (nonmanufacturing) cost ........... $ 65 ,000 Note: The average fixed selling and administrative expense per unit of $5.00 is valid for only one level of activity — 10,000 units sold .

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    Solutions Manual, Chapter 1 9 The Foundational 15 (continued) 3. Direct materials ................................ ....... $ 6.00 Direct labor ................................ ............. 3.50 Variable manufacturing overhead ............. 1.50 Sales commissions ................................ ... 1.00 Variable administrative expense ............... 0.50 Variable cost per unit sold ........................ $12.50 4. Direct materials ................................ ....... $ 6.00 Direct labor ................................ ............. 3.50 Variable manufacturing overhead ............. 1.50 Sales commissions ................................ ... 1.00 Variable administrative expense ............... 0.50 Variable cost per unit sold ........................ $12.50 5. Variable cost per unit sold (a) .................. $12.50 Number of units sold (b) .......................... 8,000 Total variable costs (a) × (b) .................... $ 10 0,000 6. Variable cost per unit sold (a) .................. $12.50 Number of units sold (b) .......................... 12,500 Total variable costs (a) × (b) .................... $ 15 6,250 7. Total fixed manufacturing cost (see requirement 1) (a) ......................... $40,000 Number of units produced (b) .................. 8,000 Average fixed manufacturing cost per unit produced (a) ÷ (b) ............................... $ 5 .00 8. Total fixed manufacturing cost (see requirement 1) (a) ......................... $40,000 Number of units produced (b) .................. 12,500 Average fixed manufacturing cost per unit produced (a) ÷ (b) ............................... $3 .20 9. Total fixed manufacturing cost (see requirement 1) .............................. $40,000

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    10 Managerial Accounting, 17th edition The Foundational 15 (continued) 10. Total fixed manufacturing cost (see requirement 1) ................................ $40,000 11. Variable overhead per unit (a) ..................... $ 1 .50 Number of units produced (b) ..................... 8 ,000 Total variable overhead cost (a) × (b) ......... $1 2 ,000 Total fixed overhead (see requirement 1) ..... 40,000 Total manufacturing overhead cost .............. $52,000 Total manufacturing overhead cost (a) ......... $ 52 ,000 Number of units produced (b) ..................... 8 ,000 Manufacturing overhead per unit (a) ÷ (b) ... $6.50 12. Variable overhead per unit (a) ..................... $ 1 .50 Number of units produced (b) ..................... 12 , 5 00 Total variable overhead cost (a) × (b) ......... $1 8 , 75 0 Total fixed overhead (see requirement 1) ..... 40,000 Total manufacturing overhead cost .............. $5 8 , 75 0 Total manufacturing overhead cost (a) ......... $ 58 , 75 0 Number of units produced (b) ..................... 12 , 5 00 Manufacturing overhead per unit (a) ÷ (b) ... $ 4 . 7 0 13. Selling price per unit ................................ ... $22.00 Variable cost per unit sold (see requirement 4) ................................ . 12.50 Contribution margin per unit ....................... $ 9. 50

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    Solutions Manual, Chapter 1 11 The Foundational 15 (continued) 14. Direct materials per unit ............................. $6.00 Direct labor per unit ................................ ... 3.50 Direct manufacturing cost per unit .............. $9.50 Direct manufacturing cost per unit (a) $9.50 Number of units produced (b) ..................... 11,000 Total direct manufacturing cost (a) × (b) ..... $104,500 Variable overhead per unit (a) ..................... $ 1 .50 Number of units produced (b) ..................... 11 , 0 00 Total variable overhead cost (a) × (b) ......... $1 6 , 50 0 Total fixed overhead (see requirement 1) ..... 40,000 Total indirect manufacturing cost ................. $5 6,500 15. Direct materials per unit ............................. $6.00 Direct labor per unit ................................ ... 3.50 Variable manufacturing overhead per unit .... 1 .50 Incremental cost per unit produced ............. $ 11 . 0 0 Note: Variable selling and administrative expenses are variable with respect to the number of units sold, not the number of units produced.

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    12 Managerial Accounting, 17th edition Exercise 1 - 1 (15 minutes) Cost Cost Object Direct Cost Indirect Cost 1. The wages of pediatric nurses The pediatric department X 2. Prescription drugs A particular patient X 3. Heating the hospital The pediatric department X 4. The salary of the head of pediatrics The pediatric department X 5. The salary of the head of pediatrics A particular pediatric patient X 6. Hospital chaplain’s salary A particular patient X 7. Lab tests by outside contractor A particular patient X 8. Lab tests by outside contractor A particular department X

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    Solutions Manual, Chapter 1 13 Exercise 1 - 2 (10 minutes) 1. The cost of a hard drive installed in a computer: direct materials. 2. The cost of advertising in the Puget Sound Computer User newspaper: selling. 3. The wages of employees who assemble computers from components: direct labor. 4. Sales commissions paid to the company’s salespeople: selling. 5. The salary of the assembly shop’s supervisor: manufacturing overhead. 6. The s alary of the company’s accountant: administrative. 7. Depreciation on equipment used to test assembled computers before release to customers: manufacturing overhead. 8. Rent on the facility in the industrial park: a combination of manufacturing overhead, selling, and administrative. The rent would most likely be prorated on the basis of the amount of space occupied by manufacturing, selling, and administrative operati ons.

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    14 Managerial Accounting, 17th edition Exercise 1 - 3 (15 minutes) Product Cost Period Cost 1. Depreciation on salespersons’ cars ........................ X 2. Rent on equipment used in the factory .................. X 3. Lubricants used for machine maintenance ............. X 4. Salaries of personnel who work in the finished goods warehouse ................................ .............. X 5. Soap and paper towels used by factory workers at the end of a shift ................................ ............... X 6. Factory supervisors’ salaries ................................ .. X 7. Heat, water, and power consumed in the factory ... X 8. Materials used for boxing products for shipment overseas (units are not normally boxed) ............. X 9. Advertising costs ................................ .................. X 10. Workers’ compensation insurance for factory employees ................................ ......................... X 11. Depreciation on chairs and tables in the factory lunchroom ................................ ......................... X 12. The wages of the receptionist in the administrative offices ................................ ............................... X 13. Cost of leasing the corporate jet used by the company's executives ................................ ........ X 14. The cost of renting rooms at a Florida resort for the annual sales conference ................................ ..... X 15. The cost of packaging the company’s product ........ X

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    Solutions Manual, Chapter 1 15 Exercise 1 - 4 (15 minutes) 1. Cups of Coffee Served in a Week 2,000 2,100 2,200 Fixed cost ................................ . $1,200 $1,200 $1,200 Variable cost ............................. 440 462 484 Total cost ................................ . $1,640 $1,662 $1,684 Average cost per cup served * ... $0.820 $0.791 $0.765 * Total cost ÷ cups of coffee served in a week 2. The average cost of a cup of coffee dec reases as the number of cups of coffee served increases because the fixed cost is spread over more cups of coffee.

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