Solution Manual for Intermediate Accounting
18th Edition, by Donald E. and Terry,
.Chapter 1- 23 | Complete Guide A+
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 1
,Questions
1-1 Thelthreelmajorltypesloflproductlcos 1-4
tsl inlalmanufacturinglcompanylareldirectl m a. Variablelcost:lThelvariablelcostlperlunitli
aterials,ldirectllabor,landlmanufacturingl ov sl constant,lbutltotallvariablelcostlchang
erhead. eslinl directlproportionltolchangeslinlvolu
me.
1-2 b. Fixedlcost:lTheltotallfixedlcostlislconstantl
a. Directlmaterialslarelanlintegrallpartlo withinlthelrelevantlrange.lThelaveragelfix
flal finishedlproductlandltheirlcostslcanlbel c edl costlperlunitlvarieslinverselylwithlchan
onvenientlyltracedltolit. gesll inlvolume.
c. Mixedlcost:lAlmixedlcostlcontainslbot
b. Indirectlmaterialslarelgenerallylsmalll it
hl variablelandlfixedlcostlelements.
emsloflmateriallsuchlaslgluelandlnails.lTheyl m
aylbelanlintegrallpartloflalfinishedlproductlb 1-5
utl theirlcostslcanlbeltracedltolthelproductlonly a. Unitlfixedlcostsldecreaselaslthelactivitylle
latl greatlcostlorlinconvenience. vell increases.
c. Directllaborlconsistslofllaborlcostslth
b. Unitlvariablelcostslremainlconstantlaslth
atl canlbeleasilyltracedltolparticularlprodu el activityllevellincreases.
cts. c. Totallfixedlcostslremainlconstantlaslth
Directllaborlislalsolcalledl―touchllabor.‖
el activityllevellincreases.
d. Indirectllaborlconsistsloflthellaborlcost
d. Totallvariablelcostslincreaselaslthelactivi
sl ofljanitors,lsupervisors,lmaterialslhandlers,l
tyl levellincreases.
andl otherlfactorylworkerslthatlcannotlbel co
nvenientlyltracedltolparticularlproducts.l The
1-6
sellaborlcostslarelincurredltolsupportl produc
a. Costlbehavior:lCostlbehaviorlrefersltolth
tion,lbutlthelworkerslinvolvedldolnotl directlyl
el waylinlwhichlcostslchangelinlresponselt
worklonlthelproduct.
ol changeslinlalmeasureloflactivitylsuchla
e. Manufacturingloverheadlincludeslalll m
sl saleslvolume,lproductionlvolume,lorlord
anufacturinglcostslexceptldirectlmaterialsland
ersl processed.
l directllabor.lConsequently,lmanufacturingl o
b. Relevantlrange:lThelrelevantlrangelislth
verheadlincludeslindirectlmaterialslandlindire
el rangeloflactivitylwithinlwhichlassumpti
ctl laborlaslwelllaslotherlmanufacturinglcosts.
onsl aboutlvariablelandlfixedlcostlbeha
viorlarel valid.
1-3
Alproductlcostlislanylcostlinvolvedlinl
1-7 Anlactivitylbaselislalmeasurelofl w
purchasinglorlmanufacturinglgoods.lInlthelcas
hateverlcauseslthelincurrenceloflalvariable
el oflmanufacturedlgoods,ltheselcostslconsistlo
l cost.lExamplesloflactivitylbaseslincludelun
fl directlmaterials,ldirectllabor,landlmanufact
itsl produced,lunitslsold,llettersltyped,lbed
uringl overhead.lAlperiodlcostlislalcostlthatlisl
slinlal hospital,lmealslservedlinlalcafe,lserv
takenl directlyltolthelincomelstatementlaslanle
icelcallsl made,letc.
xpensel inlthelperiodlinlwhichlitlislincurred.
© McGraw Hill LLC. All rights reserved. No reproduction or1-8
distribution without the prior written consentl v
Thellinearlassumptionlislreasonably
of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1
,alidlprovidinglthatlthelcostlformulalislusedl onlyl withinlthelrelevantlrange.
©lMcGrawlHilllLLC.lAlllrightslreserved.lNolreproductionlorldistributionlwithoutlthelpriorlwrittenlcon
sentl oflMcGrawlHilllLLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 3
, 1-9 Aldiscretionarylfixedlcostlhaslalfairl 1-11 Theltraditionallapproachlorganizeslco
yl shortlplanninglhorizon— stsl bylfunction,lsuchlaslproduction,lselling,lan
usuallylalyear.lSuchl costslariselfromlannuall dl administration.lWithinlalfunctionallarea,lfix
decisionslbyl managementltolspendlonlcerta edl andlvariablelcostslarelintermingled.lThel c
inlfixedlcostl items,lsuchlasladvertising,lrese ontributionlapproachlincomelstatementl organ
arch,landl managementldevelopment.lAlco izeslcostslbylbehavior,lfirstldeductinglvariabl
mmittedlfixedl costlhaslallonglplanninglhori elexpensesltolobtainlcontributionlmargin,l and
zon— lthenldeductinglfixedlexpensesltolobtainlnetl
generallyl manylyears.lSuchlcostslrelateltol operatinglincome.
alcompany’sl investmentlinlfacilities,lequipm
ent,landlbasicl organization.lOncelsuchlcosts 1-12 Thelcontributionlmarginlisltotallsale
lhavelbeenl incurred,ltheylarel―lockedlin‖lf sl revenuellessltotallvariablelexpenses.
orlmanylyears.
1-13 Aldifferentiallcostlislalcostlthatldiffers
1-10 Yes.lAslthelanticipatedllevelloflactivit l betweenlalternativeslinlaldecision.lAlsunklcos
yl changes,lthellevelloflfixedlcostslneededltol tll islalcostlthatlhaslalreadylbeenlincurredland
supportloperationslmaylalsolchange.lMostlfix l cannotlbelalteredlbylanyldecisionltakenlnow
edl costslareladjustedlupwardlandldownward lorl inlthelfuture.lAnlopportunitylcostlislthelpot
linl largelsteps,lratherlthanlbeinglabsolutelylfi entiall benefitlthatlislgivenluplwhenlonelaltern
xedlatl onellevellforlalllrangesloflactivity. ativelisl selectedloverlanother.
1-14 No,ldifferentiallcostslcanlbeleitherl v
ariablelorlfixed.lForlexample,lthelalternativ
esl mightlconsistloflpurchasinglonelmachinelra
therl thanlanotherltolmakelalproduct.lTheldiff
erencel betweenlthelfixedlcostsloflpurchasin
gltheltwol machineslislaldifferentiallcost.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1
18th Edition, by Donald E. and Terry,
.Chapter 1- 23 | Complete Guide A+
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 1
,Questions
1-1 Thelthreelmajorltypesloflproductlcos 1-4
tsl inlalmanufacturinglcompanylareldirectl m a. Variablelcost:lThelvariablelcostlperlunitli
aterials,ldirectllabor,landlmanufacturingl ov sl constant,lbutltotallvariablelcostlchang
erhead. eslinl directlproportionltolchangeslinlvolu
me.
1-2 b. Fixedlcost:lTheltotallfixedlcostlislconstantl
a. Directlmaterialslarelanlintegrallpartlo withinlthelrelevantlrange.lThelaveragelfix
flal finishedlproductlandltheirlcostslcanlbel c edl costlperlunitlvarieslinverselylwithlchan
onvenientlyltracedltolit. gesll inlvolume.
c. Mixedlcost:lAlmixedlcostlcontainslbot
b. Indirectlmaterialslarelgenerallylsmalll it
hl variablelandlfixedlcostlelements.
emsloflmateriallsuchlaslgluelandlnails.lTheyl m
aylbelanlintegrallpartloflalfinishedlproductlb 1-5
utl theirlcostslcanlbeltracedltolthelproductlonly a. Unitlfixedlcostsldecreaselaslthelactivitylle
latl greatlcostlorlinconvenience. vell increases.
c. Directllaborlconsistslofllaborlcostslth
b. Unitlvariablelcostslremainlconstantlaslth
atl canlbeleasilyltracedltolparticularlprodu el activityllevellincreases.
cts. c. Totallfixedlcostslremainlconstantlaslth
Directllaborlislalsolcalledl―touchllabor.‖
el activityllevellincreases.
d. Indirectllaborlconsistsloflthellaborlcost
d. Totallvariablelcostslincreaselaslthelactivi
sl ofljanitors,lsupervisors,lmaterialslhandlers,l
tyl levellincreases.
andl otherlfactorylworkerslthatlcannotlbel co
nvenientlyltracedltolparticularlproducts.l The
1-6
sellaborlcostslarelincurredltolsupportl produc
a. Costlbehavior:lCostlbehaviorlrefersltolth
tion,lbutlthelworkerslinvolvedldolnotl directlyl
el waylinlwhichlcostslchangelinlresponselt
worklonlthelproduct.
ol changeslinlalmeasureloflactivitylsuchla
e. Manufacturingloverheadlincludeslalll m
sl saleslvolume,lproductionlvolume,lorlord
anufacturinglcostslexceptldirectlmaterialsland
ersl processed.
l directllabor.lConsequently,lmanufacturingl o
b. Relevantlrange:lThelrelevantlrangelislth
verheadlincludeslindirectlmaterialslandlindire
el rangeloflactivitylwithinlwhichlassumpti
ctl laborlaslwelllaslotherlmanufacturinglcosts.
onsl aboutlvariablelandlfixedlcostlbeha
viorlarel valid.
1-3
Alproductlcostlislanylcostlinvolvedlinl
1-7 Anlactivitylbaselislalmeasurelofl w
purchasinglorlmanufacturinglgoods.lInlthelcas
hateverlcauseslthelincurrenceloflalvariable
el oflmanufacturedlgoods,ltheselcostslconsistlo
l cost.lExamplesloflactivitylbaseslincludelun
fl directlmaterials,ldirectllabor,landlmanufact
itsl produced,lunitslsold,llettersltyped,lbed
uringl overhead.lAlperiodlcostlislalcostlthatlisl
slinlal hospital,lmealslservedlinlalcafe,lserv
takenl directlyltolthelincomelstatementlaslanle
icelcallsl made,letc.
xpensel inlthelperiodlinlwhichlitlislincurred.
© McGraw Hill LLC. All rights reserved. No reproduction or1-8
distribution without the prior written consentl v
Thellinearlassumptionlislreasonably
of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1
,alidlprovidinglthatlthelcostlformulalislusedl onlyl withinlthelrelevantlrange.
©lMcGrawlHilllLLC.lAlllrightslreserved.lNolreproductionlorldistributionlwithoutlthelpriorlwrittenlcon
sentl oflMcGrawlHilllLLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 3
, 1-9 Aldiscretionarylfixedlcostlhaslalfairl 1-11 Theltraditionallapproachlorganizeslco
yl shortlplanninglhorizon— stsl bylfunction,lsuchlaslproduction,lselling,lan
usuallylalyear.lSuchl costslariselfromlannuall dl administration.lWithinlalfunctionallarea,lfix
decisionslbyl managementltolspendlonlcerta edl andlvariablelcostslarelintermingled.lThel c
inlfixedlcostl items,lsuchlasladvertising,lrese ontributionlapproachlincomelstatementl organ
arch,landl managementldevelopment.lAlco izeslcostslbylbehavior,lfirstldeductinglvariabl
mmittedlfixedl costlhaslallonglplanninglhori elexpensesltolobtainlcontributionlmargin,l and
zon— lthenldeductinglfixedlexpensesltolobtainlnetl
generallyl manylyears.lSuchlcostslrelateltol operatinglincome.
alcompany’sl investmentlinlfacilities,lequipm
ent,landlbasicl organization.lOncelsuchlcosts 1-12 Thelcontributionlmarginlisltotallsale
lhavelbeenl incurred,ltheylarel―lockedlin‖lf sl revenuellessltotallvariablelexpenses.
orlmanylyears.
1-13 Aldifferentiallcostlislalcostlthatldiffers
1-10 Yes.lAslthelanticipatedllevelloflactivit l betweenlalternativeslinlaldecision.lAlsunklcos
yl changes,lthellevelloflfixedlcostslneededltol tll islalcostlthatlhaslalreadylbeenlincurredland
supportloperationslmaylalsolchange.lMostlfix l cannotlbelalteredlbylanyldecisionltakenlnow
edl costslareladjustedlupwardlandldownward lorl inlthelfuture.lAnlopportunitylcostlislthelpot
linl largelsteps,lratherlthanlbeinglabsolutelylfi entiall benefitlthatlislgivenluplwhenlonelaltern
xedlatl onellevellforlalllrangesloflactivity. ativelisl selectedloverlanother.
1-14 No,ldifferentiallcostslcanlbeleitherl v
ariablelorlfixed.lForlexample,lthelalternativ
esl mightlconsistloflpurchasinglonelmachinelra
therl thanlanotherltolmakelalproduct.lTheldiff
erencel betweenlthelfixedlcostsloflpurchasin
gltheltwol machineslislaldifferentiallcost.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1
