Solution Manual For Managerial Accounting 18th Edition (McGraw-Hill, 2024) By Ray Garrison , Eric Noreen and Peter Brewer
, Solution Manual For Managerial Accounting 18th Edition (McGraw-Hill, 2024) By Ray Garrison , Eric Noreen and Peter Brewer
Chapter 1
Managerial Accounting and Cost Concepts
Questions
1-1 The three major types of product costs in a 1-4
manufacturing company are direct materials, direct labor, a. Variable cost: The variable cost per unit is constant, but
and manufacturing overhead. total variable cost changes in direct proportion to
changes in volume.
1-2 b. Fixed cost: The total fixed cost is constant within the
a. Direct materials are an integral part of a finished relevant range. The average fixed cost per unit varies
product and their costs can be conveniently traced to it. inversely with changes in volume.
b. Indirect materials are generally small items of material c. Mixed cost: A mixed cost contains both variable
such as glue and nails. They may be an integral part of a finished and fixed cost elements.
product but their costs can be traced to the product only at great
cost or inconvenience. 1-5
c. Direct labor consists of labor costs that can be easily a. Unit fixed costs decrease as the activity level increases.
traced to particular products. b. Unit variable costs remain constant as the activity level
Direct labor is also called ―touch labor.‖ increases.
d. Indirect labor consists of the labor costs of janitors, c. Total fixed costs remain constant as the activity level
supervisors, materials handlers, and other factory workers that increases.
cannot be conveniently traced to particular products. These d. Total variable costs increase as the activity level
labor costs are incurred to support production, but the increases.
workers involved do not directly work on the product.
e. Manufacturing overhead includes all manufacturing 1-6
costs except direct materials and direct labor. Consequently, a. Cost behavior: Cost behavior refers to the way in which
manufacturing overhead includes indirect materials and costs change in response to changes in a measure of
indirect labor as well as other manufacturing costs. activity such as sales volume, production volume, or
orders processed.
1-3 A product cost is any cost involved in purchasing or
b. Relevant range: The relevant range is the range of
manufacturing goods. In the case of manufactured goods, these
activity within which assumptions about variable and
costs consist of direct materials, direct labor, and manufacturing
fixed cost behavior are valid.
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. 1-7 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.
, Solution Manual For Managerial Accounting 18th Edition (McGraw-Hill, 2024) By Ray Garrison , Eric Noreen and Peter Brewer
1-9 A discretionary fixed cost has a fairly short 1-11 The traditional approach organizes costs by function,
planning horizon usually a year. Such costs arise from such as production, selling, and administration. Within a
annual decisions by management to spend on certain fixed functional area, fixed and variable costs are intermingled. The
cost items, such as advertising, research, and management contribution approach income statement organizes costs by
development. A committed fixed cost has a long planning behavior, first deducting variable expenses to obtain
horizon generally many years. Such costs relate to a contribution margin, and then deducting fixed expenses to
obtain net 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 support operations may also 1-13 A differential cost is a cost that differs between
change. Most fixed costs are adjusted upward and downward in alternatives in a decision. A sunk cost is a cost that has already
large steps, rather than being absolutely fixed at one level for all been incurred and cannot be altered by any decision taken now
ranges of activity. or 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.
, Solution Manual For Managerial Accounting 18th Edition (McGraw-Hill, 2024) By Ray Garrison , Eric Noreen and Peter Brewer
Chapter 1: Applying Excel
The completed worksheet is shown below.
