SOLUTIONS MANUAL
MANAGERIAL ACCOUNTING FOR MANAGERS
6TH EDITION
CHAPTER 1: MANAGERIAL ACCOUNTING AND COST CONCEPTS
QUESTI ONS
1-1 The three major types of product costs 1-4
in a manufacturing company are direct a. Variable cost: The variable cost per unit is
materials, direct labor, and manufacturing constant, but total variable cost changes in
overhead. direct proportion to changes in volume.
b. Fixed cost: The total fixed cost is constant
1-2 within the relevant range. The average fixed
a. Direct materials are an integral part of a cost per unit varies inversely with changes
finished product and their costs can be in volume.
conveniently traced to it. c. Mixed cost: A mixed cost contains both
b. Indirect materials are generally small variable and fixed cost elements.
items of material such as glue and nails. They
may be an integral part of a finished product but 1-5
their costs can be traced to the product only at a. Unit fixed costs decrease as the activity level
great cost or inconvenience. increases.
c. Direct labor consists of labor costs that b. Unit variable costs remain constant as the
can be easily traced to particular products. activity level increases.
Direct labor is also called “touch labor.” c. Total fixed costs remain constant as the
d. Indirect labor consists of the labor costs activity level increases.
of janitors, supervisors, materials handlers, and d. Total variable costs increase as the activity
other factory workers that cannot be level increases.
conveniently traced to particular products.
These labor costs are incurred to support 1-6
production, but the workers involved do not a. Cost behavior: Cost behavior refers to the
directly work on the product. way in which costs change in response to
e. Manufacturing overhead includes all changes in a measure of activity such as
manufacturing costs except direct materials and sales volume, production volume, or orders
direct labor. Consequently, manufacturing processed.
overhead includes indirect materials and indirect b. Relevant range: The relevant range is the
labor as well as other manufacturing costs. range of activity within which assumptions
about variable and fixed cost behavior are
1-3 A product cost is any cost involved in valid.
purchasing or manufacturing goods. In the case
of manufactured goods, these costs consist of 1-7 An activity base is a measure of
direct materials, direct labor, and manufacturing whatever causes the incurrence of a variable
overhead. A period cost is a cost that is taken cost. Examples of activity bases include units
directly to the income statement as an expense produced, units sold, letters typed, beds in a
in the period in which it is incurred.
,hospital, meals served in a cafe, service calls 1-11 The traditional approach organizes costs
made, etc.
by function, such as production, selling, and
1-8 The linear assumption is reasonably
administration. Within a functional area, fixed
valid providing that the cost formula is used only
and variable costs are intermingled. The
within the relevant range.
contribution approach income statement
1-9 A discretionary fixed cost has a fairly organizes costs by behavior, first deducting
short planning horizon—usually a year. Such variable expenses to obtain contribution margin,
costs arise from annual decisions by and then deducting fixed expenses to obtain net
management to spend on certain fixed cost operating income.
items, such as advertising, research, and
1-12 The contribution margin is total sales
management development. A committed fixed
revenue less total variable expenses.
cost has a long planning horizon—generally
many years. Such costs relate to a company’s 1-13 A differential cost is a cost that differs
investment in facilities, equipment, and basic between alternatives in a decision. An
organization. Once such costs have been opportunity cost is the potential benefit that is
incurred, they are “locked in” for many years. given up when one alternative is selected over
another. A sunk cost is a cost that has already
1-10 Yes. As the anticipated level of activity
been incurred and cannot be altered by any
changes, the level of fixed costs needed to
decision taken now or in the future.
support operations may also change. Most fixed
costs are adjusted upward and downward in 1-14 No, differential costs can be either
large steps, rather than being absolutely fixed at variable or fixed. For example, the alternatives
one level for all ranges of activity. 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.
,Applying Ex cel
The completed worksheet is shown below.
, Applying Ex cel
The completed worksheet, with formulas displayed, is shown below.
[Note: To display formulas in cells instead of their calculated amounts,
consult Excel Help.]
MANAGERIAL ACCOUNTING FOR MANAGERS
6TH EDITION
CHAPTER 1: MANAGERIAL ACCOUNTING AND COST CONCEPTS
QUESTI ONS
1-1 The three major types of product costs 1-4
in a manufacturing company are direct a. Variable cost: The variable cost per unit is
materials, direct labor, and manufacturing constant, but total variable cost changes in
overhead. direct proportion to changes in volume.
b. Fixed cost: The total fixed cost is constant
1-2 within the relevant range. The average fixed
a. Direct materials are an integral part of a cost per unit varies inversely with changes
finished product and their costs can be in volume.
conveniently traced to it. c. Mixed cost: A mixed cost contains both
b. Indirect materials are generally small variable and fixed cost elements.
items of material such as glue and nails. They
may be an integral part of a finished product but 1-5
their costs can be traced to the product only at a. Unit fixed costs decrease as the activity level
great cost or inconvenience. increases.
c. Direct labor consists of labor costs that b. Unit variable costs remain constant as the
can be easily traced to particular products. activity level increases.
Direct labor is also called “touch labor.” c. Total fixed costs remain constant as the
d. Indirect labor consists of the labor costs activity level increases.
of janitors, supervisors, materials handlers, and d. Total variable costs increase as the activity
other factory workers that cannot be level increases.
conveniently traced to particular products.
These labor costs are incurred to support 1-6
production, but the workers involved do not a. Cost behavior: Cost behavior refers to the
directly work on the product. way in which costs change in response to
e. Manufacturing overhead includes all changes in a measure of activity such as
manufacturing costs except direct materials and sales volume, production volume, or orders
direct labor. Consequently, manufacturing processed.
overhead includes indirect materials and indirect b. Relevant range: The relevant range is the
labor as well as other manufacturing costs. range of activity within which assumptions
about variable and fixed cost behavior are
1-3 A product cost is any cost involved in valid.
purchasing or manufacturing goods. In the case
of manufactured goods, these costs consist of 1-7 An activity base is a measure of
direct materials, direct labor, and manufacturing whatever causes the incurrence of a variable
overhead. A period cost is a cost that is taken cost. Examples of activity bases include units
directly to the income statement as an expense produced, units sold, letters typed, beds in a
in the period in which it is incurred.
,hospital, meals served in a cafe, service calls 1-11 The traditional approach organizes costs
made, etc.
by function, such as production, selling, and
1-8 The linear assumption is reasonably
administration. Within a functional area, fixed
valid providing that the cost formula is used only
and variable costs are intermingled. The
within the relevant range.
contribution approach income statement
1-9 A discretionary fixed cost has a fairly organizes costs by behavior, first deducting
short planning horizon—usually a year. Such variable expenses to obtain contribution margin,
costs arise from annual decisions by and then deducting fixed expenses to obtain net
management to spend on certain fixed cost operating income.
items, such as advertising, research, and
1-12 The contribution margin is total sales
management development. A committed fixed
revenue less total variable expenses.
cost has a long planning horizon—generally
many years. Such costs relate to a company’s 1-13 A differential cost is a cost that differs
investment in facilities, equipment, and basic between alternatives in a decision. An
organization. Once such costs have been opportunity cost is the potential benefit that is
incurred, they are “locked in” for many years. given up when one alternative is selected over
another. A sunk cost is a cost that has already
1-10 Yes. As the anticipated level of activity
been incurred and cannot be altered by any
changes, the level of fixed costs needed to
decision taken now or in the future.
support operations may also change. Most fixed
costs are adjusted upward and downward in 1-14 No, differential costs can be either
large steps, rather than being absolutely fixed at variable or fixed. For example, the alternatives
one level for all ranges of activity. 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.
,Applying Ex cel
The completed worksheet is shown below.
, Applying Ex cel
The completed worksheet, with formulas displayed, is shown below.
[Note: To display formulas in cells instead of their calculated amounts,
consult Excel Help.]
