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Solution Manual Introduction to Managerial Accounting, 7th Edition Brewer/Garrison, Complete Chapters 1 to 14, Verified Latest Version

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Solution Manual Introduction to Managerial Accounting, 7th Edition Brewer/Garrison, Complete Chapters 1 to 14, Verified Latest Version Brewer/Garrison, Introduction to Managerial Accounting, 7th Edition, SOLUTION MANUAL, Complete Chapters 1 - 14, Verified Latest Version Introduction to Managerial A...

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SOLUTION MANUAL
Introduction to Managerial Accounting
7th Canadian Edition
Peter C. Brewer, Ray H. Garrison, Chapter 1 - 14

,TABLE OF CONTENTS
Chapter 1 An Introduction to Managerial Accounting

PART I PRODUCT AND SERVICE COSTING
Chapter 2 Cost Concepts
Chapter 3 Systems Design: Job-Order Costing
Chapter 4 Process Costing
Chapter 5 Activity-Based Costing

PART II PLANNING AND DECISION MAKING
Chapter 6 Cost Behaviour: Analysis and Use
Chapter 7 Budgeting
Chapter 8 Cost-Volume-Profit Relationships
Chapter 9 Relevant Costs: The Key to Decision Making
Chapter 10 Capital Budgeting Decisions

PART III PERFORMANCE MEASUREMENT
Chapter 11 Standard Costs and Variance Analysis
Chapter 12 Organizational Structure and Performance Measurement
Chapter 13 "How Well Am I Doing?" - Financial Statement Analysis (online)
Chapter 14 "How Well Am I Doing?" - Cash Flow Statement (online)

,Chapter 1
An Introduction to Managerial Accounting

Solutions to Questions

1-1 Managerial accounting is concerned with providing information primarily to managers for
their use internally in the organization for the purposes of strategy, planning,
implementation and control. Financial accounting is concerned with providing information
primarily to investors, creditors, and others outside of the organization.
1-2 Essentially, the manager carries out three major activities in an organization: planning,
implementation, and control. All three activities involve decision- making and use
managerial accounting information. This is depicted in Exhibit 1- 1.
1-3 The Planning, Implementation and Control Cycle involves the following steps: (1)
formulating plans which often includes preparing budgets, (2) overseeing day-to- day
activities which includes organizing, directing and motivating people, resource allocation and
decision making, and (3) controlling which includes providing feedback via performance
reports.
1-4 In contrast to financial accounting, managerial accounting: (1) focuses on the needs of the
manager; (2) places more emphasis on the future; (3) emphasizes relevance and timeliness,
rather than verifiability and precision; (4) emphasizes the segments of an organization; (5) is
not governed by IFRS or ASPE; and (6) is not mandatory.
1-5 The lean business model focuses on continuous improvement by eliminating waste in
the organization. Companies that adopt the lean business model usually implement
one or more of the following management practices.

 Just-in-time (JIT): A production and inventory control system in which materials
are purchased and units are produced only as needed to meet actual customer
demand.

,  Total quality management (TQM): An approach to continuous improvement
that focuses on serving customers and uses teams of front- line workers to
systematically identify and solve problems.
 Process re-engineering: An approach to improvement that involves
completely redesigning business processes in order to eliminate unnecessary
steps, reduce errors, and reduce costs.
 Theory of constraints (TOC): A management approach that
emphasizes the importance of managing constraints.

1-6 Benefits
 Improves operational processes that makes the business efficient
 It leads to reduction or elimination of waste
 It improves profitability and reduces costs
 It reduces the turnaround time to fulfill customer orders improving
customer satisfaction

Limitations
Production schedule can get hampered if any external shocks lead to
supply chain disturbance
Lean processes must be complimented with agile processes to adapt swiftly to
changing customer needs.
1-7 Pros
Funds tied up in maintaining inventory can be used elsewhere
Areas previously used to store inventories are made available for other more
productive uses
The time required to fill an order is reduced, resulting in quicker response to
customers and consequentially greater potential sales
Defect rates are reduced resulting in less waste and greater customer
satisfaction
More effective operations

Cons
Increased number of purchase orders to buy raw materials and/or other
components used in manufacturing products
There is little room for errors and defects in products because this could throw the
production facility off schedule
There is a high reliance and dependence on suppliers to meet delivery deadlines
as well as supply products that have no defects and require minimal inspection

1-8 Agree. Ethical behaviour is the foundation of a successful market economy. If we cannot
trust people to act ethically in their business dealings with us, we will be inclined to invest
less, scrutinize more and waste money and time (scarce resources) trying to protect ourselves.
Ethical standards and Codes of Conduct

, aid the smooth running of the economy. In addition, the lack of regulatory
requirements (IFRS, ASPE) regarding managerial accounting makes ethical behaviour
even more critical.

Solutions to Exercises

Exercise 1-1 (LO1 CC2)

Item Financial Managerial
Accounting Accounting

a) Preparing budgeted statements of X
income and financial position for
the next year

b) Analyzing the profitability of a X
new project

c) Preparing the income statement X
and balance sheet

d) Preparing a weekly X
performance report for the
product manager

e) Costing and pricing a new X
product

Exercise 1-2 (LO1 CC1)

Planning Implementation Control

a) Doing a cost–benefit analysis X
of buying new planes versus
leasing them

b) Estimating the cost of X
utilities to be incurred
during the next quarter

, c) Documenting variances X
from standard costs of
different products

d) Compiling the raw material X
wastage report for the past
month

e) Changing procurement X
process based on an
internal audit report

f) Documenting the savings from X
reductions in raw materials
inventory resulting from the
adoption of a just-in-time
inventory system

Solutions to Problems

Problem 1-1 (LO3 CC5)

a) This has ethical implications because the code of ethics mandates that all professional
accountants will abide by the fundamental principles. There are two possible issues here –
integrity and objectivity. By not reporting the inventory as obsolete, Emily will be violating
the principle of integrity and due care. There is also an issue of personal integrity here; as a
professional accountant she is required ―to be straightforward and honest in all professional
and business relationships.‖ Also, as a professional accountant, Emily should not allow her
professional judgement to be compromised by bias or conflict of interest. It would be hard
for Emily to take ethical action in this situation because the management team is likely to be
senior to her in hierarchy. Emily should raise this matter to her chief financial officer.

b) The main ethical implications here are the issues of Professional Behaviour and
Objectivity. The code mandates that a member will conduct themselves at all

, times in a manner which will maintain the good reputation of the profession and serve the
public interest. Also, the professional accountants should not allow their business
judgement to be compromised by bias, conflict of interest or undue influence of others.
Thus, the accountant should not provide better financial projections than their professional
judgement.

Problem 1-2 (LO3 CC5)

There is an ethical dilemma associated with the request to issue sales invoices for ‗fictitious‘
sales. The manager is wanting to meet a revenue target by recording sales at the end of the
year that are later reversed. If the professional accountant records this, then it violates the
principles of Professional Behaviour, Integrity and Due Care as well as Objectivity.
The professional accountant should explain to the manager the rules for recognizing
revenue. They should also tell the manager about the code of ethics governing the
profession as well as the reputational damage to the organization when it is discovered that
the company is violating the rules of rules of revenue recognition.

Chapter 2
Cost Concepts

Solutions to Questions

2-1 Cost behaviour refers to how a cost will react vary inversely on a per-unit basis with changes in the
or respond to changes in the level of business activity. level of activity.

2-2 No. A variable cost is a cost that varies, in 2-3 When fixed costs are involved, the cost per
total, in direct proportion to changes in the level of unit of activity will depend on the activity volume (or
activity. A variable cost is constant per unit of the level). For example, as production increases, the cost
activity level (e.g., number of beds occupied). A fixed per unit will fall because the fixed cost is spread over
cost is fixed in total, but will more units. Conversely, as production declines, the
cost per unit will rise

,since a constant fixed cost figure will be spread over Indirect materials are ordinarily classified as part of
fewer units. manufacturing overhead.
c. Direct labour: Direct labour includes those
2-4 The cost of direct materials included in a labour costs that can be easily traced to particular
product is a variable cost; similarly, sales commissions products. Direct labour is also called
paid out on a per unit basis or as a percentage of sales ―touch labour.‖
dollars is a variable cost. d. Indirect labour: Indirect labour includes the
On the other hand, costs such as building rent and labour costs of workers who do not directly work on
the salary of a general manager are fixed costs. products but provide a support function. Examples
of such labour include janitors, supervisors, materials
2-5 Fixed costs in total do not vary with volume handlers, and other factory workers that cannot be
within a relevant range. However, fixed costs per unit conveniently traced directly to particular products.
of volume decrease as volume increases and increases e. Manufacturing overhead: Manufacturing
as volume decreases. overhead includes all manufacturing costs except
Therefore, an inverse relationship exists between direct materials and direct labour.
volume and fixed costs per unit of volume.
2-11 PC = DM + DL
2-6 Manufacturing overhead is an indirect cost CC = DL + MOH
since these costs cannot be easily and conveniently PC = DM + CC - MOH
traced to individual products.
2-12 A product cost is any cost incurred for the
2-7 A differential cost is a cost that differs purchase or the manufacture of goods. In the case of
between alternatives in a decision. An opportunity manufactured goods, these costs consist of direct
cost is the potential benefit that is given up when one materials, direct labour, and manufacturing overhead.
alternative is selected over another. A sunk cost is a A period cost is a cost that is taken directly to the
cost that has already been incurred and cannot be income statement as an expense in the period in which
altered by any decision taken now or in the future. it is incurred. Examples include selling (marketing) and
administrative expenses.
2-8 No; differential costs can be either variable
or fixed. For example, the alternatives might consist 2-13 The income statement of a manufacturing
of purchasing one computer software program over firm differs from the income statement of a
another to simplify the accounts receivable process. merchandising firm in the cost of goods sold section.
The difference in the fixed costs of purchasing the The merchandising firm sells finished goods that it has
two programs would be a differential cost. purchased from a supplier. These goods are listed as
―Purchases‖ in the cost of goods sold section. Since
2-9 The three major elements of product the manufacturing firm produces its goods rather than
costs in a manufacturing company are direct buying them from a supplier, it lists ―Cost of Goods
materials, direct labour, and manufacturing Manufactured‖ in place of ―Purchases.‖ Also, the
overhead. manufacturing firm identifies its inventory in this
section as ―Finished Goods Inventory,‖ rather than as
2-10 ―Merchandise Inventory.‖
a. Direct materials: Direct materials are an
integral part of a finished product and can be 2-14 The schedule of cost of goods manufactured
conveniently traced into it. is used to list and organize the manufacturing costs that
b. Indirect materials: Indirect materials are have been incurred. These costs are organized under
generally small items of material such as glue and the three major headings of direct materials, direct
nails. They may become an integral part of a finished labour, and manufacturing overhead. The total costs
product but are traceable into the product only at
great cost or inconvenience.

Copyright © 2023 McGraw Hill Ltd. All rights reserved.
6 Introduction to Managerial Accounting, Seventh Canadian
Edition

,incurred are adjusted for any change in the Work in called inventoriable costs. The flow is from direct
Process inventory to determine the cost of goods materials, direct labour, and manufacturing overhead
manufactured (i.e., finished) during the period. into Work in Process. As goods are completed, their
The schedule of cost of goods manufactured cost is removed from Work in Process and
ties into the income statement through the Cost of transferred into Finished Goods. As goods are sold,
Goods Sold section. The cost of goods manufactured their cost is removed from Finished Goods and
is added to the beginning Finished Goods inventory to transferred into Cost of Goods Sold. Cost of Goods
determine the goods available for sale. In effect, the Sold is an expense on the income statement.
cost of goods manufactured takes the place of the
―Purchases‖ account in a merchandising firm. 2-17 Yes, costs such as salaries and depreciation
can end up as assets on the balance sheet if these are
2-15 A manufacturing firm has three inventory manufacturing costs. Manufacturing costs are
accounts: Raw Materials, Work in Process, and Finished inventoried until the associated finished goods are sold.
Goods. The merchandising firm generally identifies its Thus, such costs may be part of either Work in Process
inventory account simply as Merchandise Inventory. inventory or Finished Goods inventory at the end of a
period if there are unsold units.
2-16 Since product costs follow units of
product into inventory, they are sometimes

© 2017 McGraw-Hill Education. All rights reserved.

Solutions Manual, Chapter 2 7

, The Foundational 15 (LO1 – CC1; LO2 – CC2; LO3 – CC3; LO4 – CC4, 5, 6, 7)
1. Direct materials ........................................................ $ 6.00
Direct labour ............................................................ 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) ................................... 20,000
Total variable manufacturing cost (a) × (b) ................ $220,000
Fixed manufacturing overhead per unit (c) ................. $5.00
Number of units produced (d) ................................... 20,000
Total fixed manufacturing cost (c) × (d)..................... 100,000
Total product (manufacturing) cost ............................ $320,000

2. Sales commissions.................................................... $1.50
Variable administrative expense................................. 0.75
Variable selling and administrative per unit................. $2.25

Variable selling and admin. per unit (a) ...................... $2.25
Number of units sold (b) ........................................... 20,000
Total variable selling and admin. expense
(a) × (b) ............................................................ $45,000
Fixed selling and administrative expense per unit
($4 fixed selling + $3 fixed admin.) (c) ................... $7.00
Number of units sold (d) ........................................... 20,000
Total fixed selling and administrative expense (c) × (d)
........................................................................ 140,000
Total period (nonmanufacturing) cost......................... $185,000

3. Direct materials ........................................................ $ 6.00
Direct labour ............................................................ 3.50
Variable manufacturing overhead............................... 1.50
Sales commissions.................................................... 1.50
Variable administrative expense................................. 0.75
Variable cost per unit sold ......................................... $13.25

Copyright © 2023 McGraw Hill Ltd. All rights reserved.
8 Introduction to Managerial Accounting, Seventh Canadian Edition

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Exam (elaborations)

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