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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
items of material such as glue and nails. They
c. Direct labor consists of labor costs that
of janitors, supervisors, materials handlers, and
purchasing or manufacturing goods. In the case
of manufactured goods, these costs consist of
1-4
a. Variable cost: The variable cost per unit is
b. Fixed cost: The total fixed cost is constant
b. Unit variable costs remain constant as the
d. Total variable costs increase as the activity
1-7 An activity base is a measure of
1-8 The linear assumption is reasonably
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2 Managerial Accounting, 16th 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
1-10 Yes. As the anticipated level of activity
changes, the level of fixed costs needed to
support operations may also change. Most fixed
1-11 The traditional approach organizes costs
by function, such as production, selling, and
administration. Within a functional area, fixed
and variable costs are intermingled. The
1-13 A differential cost is a cost that differs
between alternatives in a decision. An
1-14 No, differential costs can be either
variable or fixed. For example, the alternatives
might consist of purchasing one machine rather
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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, 16th 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
© The McGraw-Hill Companies, Inc., 2018. All rights reserved.
6 Managerial Accounting, 16th 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 behavior may be messier.)
The contribution margin also increased by 10%, from $6,000 to $6,600,
because both of its components—sales and variable costs—increased by
10%.
The net operating income increased by more than 10%, from $700 to
$1,170, 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, 16th edition
The Foundational 15
1. Direct materials ………………………………….. $ 6.00
Direct labor ………………………………..……… 3.50
V
ariable manufacturin
g
cost per unit (a) …… $11.00
Number of units produced (b)………………… 10,000
T
otal variable manufacturin
g
cost (a) × (b).. $110,000
A
Number of units produced (d)………………… 10,000
otal fixed manufacturin
cost (c) × (d) ..…. 40,000
T
otal product (manufacturin
g
) cost………….. $150,000
2. Sales commissions ………………………………. $1.00
V
V
g
V
ariable sellin
g
and admin. per unit (a) ……. $1.50
Number of units sold (b) ………………………. 10,000
T
otal variable sellin
g
and admin. expense
(a) × (b) ……………………………………….
$15,000
A
T
T
V
g
V
g
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Solutions Manual, Chapter 1 9
The Foundational 15 (continued)
3. Direct materials ……………………………….. $ 6.00
Direct labor …………………………………….. 3.50
V
ariable manufacturin
g
overhead …………. 1.50
Sales commissions ……………………………. 1.00
V
ariable administrative expense …………… 0.50
V
ariable administrative expense …………… 0.50
V
V
T
V
T
7.
Total fixed manufacturing cost
(see requirement 1) (a) ……………………
$40,000
A
8.
Total fixed manufacturing cost
(see requirement 1) (a) ……………………
$40,000
A
9.
Total fixed manufacturing cost
V
V
g
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10 Managerial Accounting, 16th edition
The Foundational 15 (continued)
10.
T
otal fixed manufacturin
g
cost
11.
V
ariable overhead per unit (a) ………………..
$1.50
Number of units produced (b)……………….. 8,000
T
otal variable overhead cost (a) × (b) …….. $12,000
T
T
12.
V
ariable overhead per unit (a) ………………..
$1.50
Number of units produced (b)……………….. 12,500
T
otal variable overhead cost (a) × (b) …….. $18,750
T
T
13. Selling price per unit …………………………….
$22.00
V