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Solutions Manual for Managerial Accounting 15th Edition by GarrisonFull Download: Chapter 2Managerial Accounting and Cost ConceptsSolutions to Questions2-1The three major elements of productcosts in a manufacturing company are directmaterials, direct labor, and manufacturingoverhead.2-2a. Direct materials are an integral part of afinished product and their costs can beconveniently traced to it.b. Indirect materials are generally smallitems of material such as glue and nails. Theymay be an integral part of a finished product buttheir costs can be traced to the product only atgreat cost or inconvenience.c. Direct labor consists of labor costs thatcan be easily traced to particular products.Direct labor is also called “touch labor.”d. Indirect labor consists of the labor costsof janitors, supervisors, materials handlers, andother factory workers that cannot beconveniently traced to particular products.These labor costs are incurred to supportproduction, but the workers involved do notdirectly work on the product.e. Manufacturing overhead includes allmanufacturing costs except direct materials anddirect labor. Consequently, manufacturingoverhead includes indirect materials and indirectlabor as well as other manufacturing costs.2-3A product cost is any cost involved inpurchasing or manufacturing goods. In the caseof manufactured goods, these costs consist ofdirect materials, direct labor, and manufacturingoverhead. A period cost is a cost that is takendirectly to the income statement as an expensein the period in which it is incurred.2-4a. Variable cost: The variable cost per unit isconstant, but total variable cost changes indirect proportion to changes in volume.b. Fixed cost: The total fixed cost is constantwithin the relevant range. The average fixedcost per unit varies inversely with changesin volume.c. Mixed cost: A mixed cost contains bothvariable and fixed cost elements.2-5a. Unit fixed costs decrease as volumeincreases.b. Unit variable costs remain constant asvolume increases.c. Total fixed costs remain constant as volumeincreases.d. Total variable costs increase as volumeincreases.2-6a. Cost behavior: Cost behavior refers to theway in which costs change in response tochanges in a measure of activity such assales volume, production volume, or ordersprocessed.b. Relevant range: The relevant range is therange of activity within which assumptionsabout variable and fixed cost behavior arevalid.2-7An activity base is a measure ofwhatever causes the incurrence of a variablecost. Examples of activity bases include unitsproduced, units sold, letters typed, beds in ahospital, meals served in a cafe, service callsmade, etc.2-8The linear assumption is reasonablyvalid providing that the cost formula is used onlywithin the relevant range. The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 2Full all chapters instant download please go to Solutions Manual, Test Bank site: downloadlink.org1
2-9A discretionary fixed cost has a fairlyshort planning horizon—usually a year. Suchcosts arise from annual decisions bymanagement to spend on certain fixed costitems, such as advertising, research, andmanagement development. A committed fixedcost has a long planning horizon—generallymany years. Such costs relate to a company’sinvestment in facilities, equipment, and basicorganization. Once such costs have beenincurred, they are “locked in” for many years.2-10 Yes. As the anticipated level of activitychanges, the level of fixed costs needed tosupport operations may also change. Most fixedcosts are adjusted upward and downward inlarge steps, rather than being absolutely fixed atone level for all ranges of activity.2-11 The high-low method uses only twopoints to determine a cost formula. These twopoints are likely to be less than typical becausethey represent extremes of activity.2-12 The formula for a mixed cost is Y a bX. In cost analysis, the “a” term represents thefixed cost and the “b” term represents thevariable cost per unit of activity.2-13 The term “least-squares regression”means that the sum of the squares of thedeviations from the plotted points on a graph tothe regression line is smaller than could beobtained from any other line that could be fittedto the data.2-14 The contribution approach incomestatement organizes costs by behavior, firstdeducting variable expenses to obtaincontribution margin, and then deducting fixedexpenses to obtain net operating income. Thetraditional approach organizes costs by function,such as production, selling, and administration.Within a functional area, fixed and variable costsare intermingled.2-15 The contribution margin is total salesrevenue less total variable expenses.2-16 A differential cost is a cost that differsbetween alternatives in a decision. Anopportunity cost is the potential benefit that isgiven up when one alternative is selected overanother. A sunk cost is a cost that has alreadybeen incurred and cannot be altered by anydecision taken now or in the future.2-17 No, differential costs can be eithervariable or fixed. For example, the alternativesmight consist of purchasing one machine ratherthan another to make a product. The differencebetween the fixed costs of purchasing the twomachines is a differential cost. The McGraw-Hill Companies, Inc., 2015. All rights reserved.2Managerial Accounting, 15th edition
The Foundational 151. Direct materials . 6.00Direct labor .3.50Variable manufacturing overhead .1.50Variable manufacturing cost per unit . 11.00Variable manufacturing cost per unit (a) . 11.00Number of units produced (b) .10,000Total variable manufacturing cost (a) (b) . 110,000Average fixed manufacturing overhead perunit (c). 4.00Number of units produced (d) .10,000Total fixed manufacturing cost (c) (d) .40,000Total product (manufacturing) cost . 150,000Note: The average fixed manufacturing overhead cost per unit of 4.00is valid for only one level of activity—10,000 units produced.2. Sales commissions. 1.00Variable administrative expense .0.50Variable selling and administrative per unit . 1.50Variable selling and admin. per unit (a). 1.50Number of units sold (b) .10,000Total variable selling and admin. expense(a) (b) . 15,000Average fixed selling and administrativeexpense per unit ( 3 fixed selling 2fixed admin.) (c) . 5.00Number of units sold (d) .10,000Total fixed selling and administrativeexpense (c) (d) .50,000Total period (nonmanufacturing) cost . 65,000Note: The average fixed selling and administrative expense per unit of 5.00 is valid for only one level of activity—10,000 units sold. The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 23
The Foundational 15 (continued)3. Direct materials . 6.00Direct labor .3.50Variable manufacturing overhead .1.50Sales commissions .1.00Variable administrative expense.0.50Variable cost per unit sold . 12.504. Direct materials . 6.00Direct labor .3.50Variable manufacturing overhead .1.50Sales commissions .1.00Variable administrative expense.0.50Variable cost per unit sold . 12.505. Variable cost per unit sold (a). 12.50Number of units sold (b) .8,000Total variable costs (a) (b) . 100,0006. Variable cost per unit sold (a). 12.50Number of units sold (b) .12,500Total variable costs (a) (b) . 156,2507. Total fixed manufacturing cost(see requirement 1) (a) . 40,000Number of units produced (b) .8,000Average fixed manufacturing cost per unitproduced (a) (b) . 5.008. Total fixed manufacturing cost(see requirement 1) (a) . 40,000Number of units produced (b) .12,500Average fixed manufacturing cost per unitproduced (a) (b) . 3.209. Total fixed manufacturing cost(see requirement 1) . 40,000 The McGraw-Hill Companies, Inc., 2015. All rights reserved.4Managerial Accounting, 15th edition
The Foundational 15 (continued)10. Total fixed manufacturing cost(see requirement 1) . 40,00011. Variable overhead per unit (a) . 1.50Number of units produced (b) .8,000Total variable overhead cost (a) (b). 12,000Total fixed overhead (see requirement 1) .40,000Total manufacturing overhead cost . 52,000Total manufacturing overhead cost (a) .Number of units produced (b) .Manufacturing overhead per unit (a) (b) . 52,0008,000 6.5012. Variable overhead per unit (a) . 1.50Number of units produced (b) .12,500Total variable overhead cost (a) (b). 18,750Total fixed overhead (see requirement 1) .40,000Total manufacturing overhead cost . 58,750Total manufacturing overhead cost (a) .Number of units produced (b) .Manufacturing overhead per unit (a) (b) . 58,75012,500 4.7013. Selling price per unit . 22.00Variable cost per unit sold(see requirement 4) .12.50Contribution margin per unit . 9.50 The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 25
The Foundational 15 (continued)14. Direct materials per unit . 6.00Direct labor per unit .3.50Direct manufacturing cost per unit (a) . 9.50Number of units produced (b) .11,000Total direct manufacturing cost (a) (b) . 104,500Variable overhead per unit (a) . 1.50Number of units produced (b) .11,000Total variable overhead cost (a) (b) .Total fixed overhead (see requirement 1) .Total indirect manufacturing cost . 16,50040,000 56,50015. Direct materials per unit . 6.00Direct labor per unit .3.50Variable manufacturing overhead per unit .1.50Incremental cost per unit produced . 11.00Note: Variable selling and administrative expenses are variable withrespect to the number of units sold, not the number of units produced. The McGraw-Hill Companies, Inc., 2015. All rights reserved.6Managerial Accounting, 15th edition
Exercise 2-1 (15 minutes)1.2.3.4.5.6.7.8.CostThe wages of pediatricnursesPrescription drugsHeating the hospitalThe salary of the headof pediatricsThe salary of the headof pediatricsHospital chaplain’ssalaryLab tests by outsidecontractorLab tests by outsidecontractorCost ObjectThe pediatricdepartmentA particular patientThe pediatricdepartmentThe pediatricdepartmentA particular pediatricpatientA particular patientA particular patientA particular departmentDirectCostIndirectCostXXXXXXXX The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 27
Exercise 2-2 (10 minutes)1. The cost of a hard drive installed in a computer: direct materials.2. The cost of advertising in the Puget Sound Computer User newspaper:selling.3. The wages of employees who assemble computers from components:direct labor.4. Sales commissions paid to the company’s salespeople: selling.5. The wages of the assembly shop’s supervisor: manufacturing overhead.6. The wages of the company’s accountant: administrative.7. Depreciation on equipment used to test assembled computers beforerelease to customers: manufacturing overhead.8. Rent on the facility in the industrial park: a combination ofmanufacturing overhead, selling, and administrative. The rent wouldmost likely be prorated on the basis of the amount of space occupied bymanufacturing, selling, and administrative operations. The McGraw-Hill Companies, Inc., 2015. All rights reserved.8Managerial Accounting, 15th edition
Exercise 2-3 (15 iation on salespersons’ cars .Rent on equipment used in the factory .Lubricants used for machine maintenance.Salaries of personnel who work in the finishedgoods warehouse.Soap and paper towels used by factory workers atthe end of a shift .Factory supervisors’ salaries .Heat, water, and power consumed in the factory .Materials used for boxing products for shipmentoverseas (units are not normally boxed).Advertising costs .Workers’ compensation insurance for factoryemployees .Depreciation on chairs and tables in the factorylunchroom .The wages of the receptionist in the administrativeoffices .Cost of leasing the corporate jet used by thecompany's executives .The cost of renting rooms at a Florida resort for theannual sales conference .The cost of packaging the company’s product .Product PeriodCostCostXXXXXXXXXXXXXXX The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 29
Exercise 2-4 (15 minutes)1.Fixed cost .Variable cost .Total cost .Average cost per cup served * .Cups of Coffee Servedin a Week2,0002,1002,200 1,200440 1,640 0.820 1,200462 1,662 0.791 1,200484 1,684 0.765* Total cost cups of coffee served in a week2. The average cost of a cup of coffee declines as the number of cups ofcoffee served increases because the fixed cost is spread over more cupsof coffee. The McGraw-Hill Companies, Inc., 2015. All rights reserved.10Managerial Accounting, 15th edition
Exercise 2-5 (20 minutes)1.High activity level (August) .Low activity level (October).Change .OccupancyDays2,4061242,282ElectricalCosts 5,1481,588 3,560Variable cost Change in cost Change in activity 3,560 2,282 occupancy-days 1.56 per occupancy-dayTotal cost (August) .Variable cost element( 1.56 per occupancy-day 2,406 occupancy-days)Fixed cost element . 5,1483,753 1,3952. Electrical costs may reflect seasonal factors other than just the variationin occupancy days. For example, common areas such as the receptionarea must be lighted for longer periods during the winter than in thesummer. This will result in seasonal fluctuations in the fixed electricalcosts.Additionally, fixed costs will be affected by the number of days in amonth. In other words, costs like the costs of lighting common areas arevariable with respect to the number of days in the month, but are fixedwith respect to how many rooms are occupied during the month.Other, less systematic, factors may also affect electrical costs suchas the frugality of individual guests. Some guests will turn off lightswhen they leave a room. Others will not. The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 211
Exercise 2-6 (15 minutes)1. Traditional income statementCherokee, Inc.Traditional Income StatementSales ( 30 per unit 20,000 units) .Cost of goods sold( 24,000 180,000 – 44,000) .Gross margin.Selling and administrative expenses:Selling expenses(( 4 per unit 20,000 units) 40,000) .Administrative expenses(( 2 per unit 20,000 units) 30,000) .Net operating income . 600,000160,000440,000120,00070,000190,000 250,0002. Contribution format income statementCherokee, Inc.Contribution Format Income StatementSales .Variable expenses:Cost of goods sold( 24,000 180,000 – 44,000) .Selling expenses ( 4 per unit 20,000 units) .Administrative expenses( 2 per unit 20,000 units) .Contribution margin .Fixed expenses:Selling expenses .Administrative expenses .Net operating income . 600,000 0 250,000 The McGraw-Hill Companies, Inc., 2015. All rights reserved.12Managerial Accounting, 15th edition
Exercise 2-7 (15 minutes)Item1. Cost of the old X-ray machine .2. The salary of the head of theRadiology Department .3. The salary of the head of thePediatrics Department .4. Cost of the new color laserprinter .5. Rent on the space occupied byRadiology .6. The cost of maintaining the oldmachine .7. Benefits from a new DNAanalyzer.8. Cost of electricity to run the Xray machines .DifferentialCostOpportunityCostSunkCostXXXXXNote: The costs of the salaries of the head of the Radiology Departmentand Pediatrics Department and the rent on the space occupied byRadiology are neither differential costs, nor opportunity costs, nor sunkcosts. These costs do not differ between the alternatives and therefore areirrelevant in the decision, but they are not sunk costs because they occurin the future. The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 213
Exercise 2-8 (20 minutes)1.High level of activity .Low level of activity .Change .Kilometers Total AnnualDrivenCost*105,00070,00035,000 11,9709,380 2,590* 105,000 kilometers 0.114 per kilometer 11,97070,000 kilometers 0.134 per kilometer 9,380Variable cost per kilometer:Change in cost 2,590 0.074 per kilometerChange in activity 35,000 kilometersFixed cost per year:Total cost at 105,000 kilometers .Less variable portion:105,000 kilometers 0.074 per kilometer .Fixed cost per year . 11,9707,770 4,2002. Y 4,200 0.074X3. Fixed cost .Variable cost:80,000 kilometers 0.074 per kilometer .Total annual cost . 4,2005,920 10,120 The McGraw-Hill Companies, Inc., 2015. All rights reserved.14Managerial Accounting, 15th edition
Exercise 2-9 (10 minutes)1. Product costs:Direct materials .Direct labor .Manufacturing overhead .Total product costs . 80,00042,00019,000 141,0002. Period costs:Selling expenses .Administrative expenses.Total period costs . 22,00035,000 57,0003. Conversion costs:Direct labor .Manufacturing overhead .Total conversion costs . 42,00019,000 61,0004. Prime costs:Direct materials .Direct labor .Total prime costs . 80,00042,000 122,000 The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 215
Exercise 2-10 (20 minutes)1. The company’s variable cost per unit is: 180,000 6 per unit.30,000 unitsIn accordance with the behavior of variable and fixed costs, thecompleted schedule is:Total costs:Variable costs .Fixed costs .Total costs .Cost per unit:Variable cost .Fixed cost .Total cost per unit .Units produced and sold30,00040,00050,000 180,000300,000 480,000 6.0010.00 16.00 240,000 300,000300,000 300,000 540,000 600,000 6.007.50 13.50 6.006.00 12.002. The company’s income statement in the contribution format is:Sales (45,000 units 16 per unit) .Variable expenses (45,000 units 6 per unit) .Contribution margin.Fixed expense .Net operating income . 720,000270,000450,000300,000 150,000 The McGraw-Hill Companies, Inc., 2015. All rights reserved.16Managerial Accounting, 15th edition
Exercise 2-11 (45 minutes)1. The scattergraph appears below: 3,000Shipping Expense 2,500 2,000 1,500 1,000 500 00246810Units ShippedYes, there is an approximately linear relationship between the number ofunits shipped and the total shipping expense. The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 217
Exercise 2-11 (continued)2. The high-low estimates and cost formula are computed as follows:Units Shipped Shipping ExpenseHigh activity level (June).Low activity level (July).Change .826 2,7001,200 1,500Variable cost element:Change in expense 1,500 250 per unit.Change in activity 6 unitsFixed cost element:Shipping expense at high activity level .Less variable cost element ( 250 per unit 8 units).Total fixed cost . 2,7002,000 700The cost formula is 700 per month plus 250 per unit shipped orY 700 250X,where X is the number of units shipped.The scattergraph on the following page shows the straight line drawnthrough the high and low data points. The McGraw-Hill Companies, Inc., 2015. All rights reserved.18Managerial Accounting, 15th edition
Exercise 2-11 (continued) 3,000Shipping Expense 2,500 2,000 1,500 1,000 500 00246810Units Shipped3. The high-low estimate of fixed costs is 210.71 lower than the estimateprovided by least-squares regression. The high-low estimate of thevariable cost per unit is 32.14 higher than the estimate provided byleast-squares regression. A straight line that minimized the sum of thesquared errors would intersect the Y-axis at 910.71 instead of 700. Itwould also have a flatter slope because the estimated variable cost perunit is lower than the high-low method.4. The cost of shipping units is likely to depend on the weight and volumeof the units shipped and the distance traveled as well as on the numberof units shipped. In addition, higher cost shipping might be necessary tomeet a deadline. The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 219
Exercise 2-12 (30 minutes)Name of the CostRental revenue forgone, 30,000per year.Direct materials cost, 80 per unit .Rental cost of warehouse, 500per month.Rental cost of equipment, 4,000per month.Direct labor cost, 60 per unit .Depreciation of the annex space, 8,000 per year .Advertising cost, 50,000 per year .Supervisor's salary, 1,500 permonth .Electricity for machines, 1.20 perunit .Shipping cost, 9 per unit.Return earned on investments, 3,000 per year .PeriodProduct Cost(SellingManuand OpporVariable Fixed Direct Direct facturing Admin) tunity SunkCostCost Materials Labor Overhead CostCost CostXXXXXXXXXXXXXXXXXXXX The McGraw-Hill Companies, Inc., 2015. All rights reserved.20XManagerial Accounting, 15th edition
Exercise 2-13 (20 minutes)1. Traditional income statementThe Alpine House, Inc.Traditional Income StatementSales .Cost of goods sold( 30,000 100,000 – 40,000) .Gross margin.Selling and administrative expenses:Selling expenses (( 50 per unit 200 pairs ofskis*) 20,000) .Administrative expenses (( 10 per unit 200pairs of skis) 20,000).Net operating income . 150,00090,00060,00030,00022,00052,000 8,000* 150,000 sales 750 per pair of skis 200 pairs of skis.2. Contribution format income statementThe Alpine House, Inc.Contribution Format Income StatementSales .Variable expenses:Cost of goods sold( 30,000 100,000 – 40,000) .Selling expenses( 50 per unit 200 pairs of skis) .Administrative expenses( 10 per unit 200 pairs of skis) .Contribution margin .Fixed expenses:Selling expenses .Administrative expenses .Net operating income . 150,000 90,00010,0002,00020,00020,000102,00048,00040,000 8,000 The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 221
Exercise 2-13 (continued)2. Since 200 pairs of skis were sold and the contribution margin totaled 48,000 for the quarter, the contribution of each pair of skis towardfixed expenses and profits was 240 ( 48,000 200 pair of skis 240per pair of skis). The McGraw-Hill Companies, Inc., 2015. All rights reserved.22Managerial Accounting, 15th edition
Exercise 2-14 (30 minutes)1.High activity level (July) .Low activity level (March) .Change .CustodialGuest- SuppliesDays Expense12,0004,0008,000 13,5007,500 6,000Variable cost per guest-day:Change in expense 6,000 0.75 per guest-dayChange in activity 8,000 guest-daysFixed cost per month:Custodial supplies expense at high activity level .Less variable cost element:12,000 guest-days 0.75 per guest-day .Total fixed cost . 13,5009,000 4,500The cost formula is 4,500 per month plus 0.75 per guest-day orY 4,500 0.75X2. Custodial supplies expense for 11,000 guest-days:Variable cost:11,000 guest-days 0.75 per guest-day .Fixed cost .Total cost . 8,2504,500 12,750 The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 223
Exercise 2-14 (continued)3. The scattergraph appears below.4. The high-low estimate of fixed costs is 526.90 higher than the estimateprovided by least-squares regression. The high-low estimate of thevariable cost per unit is 0.02 lower than the estimate provided by leastsquares regression. A straight line that minimized the sum of thesquared errors would intersect the Y-axis at 3,973.10 instead of 4,500. It would also have a steeper slope because the estimatedvariable cost per unit is higher than the high-low method.5. Expected custodial supplies expense for 11,000 guest-days:Variable cost: 11,000 guest-days 0.77 per day . 8,470.00Fixed cost .3,973.10Total cost . 12,443.10 The McGraw-Hill Companies, Inc., 2015. All rights reserved.24Managerial Accounting, 15th edition
Exercise 2-15 (15 minutes)Cost Item1. Hamburger buns at aWendy’s outlet .2. Advertising by a dentaloffice .3. Apples processed andcanned by Del Monte4. Shipping cannedapples from a DelMonte plant tocustomers .5. Insurance on a Bausch& Lomb factoryproducing contactlenses .6. Insuranc
Solutions Manual, Chapter 2 1 Chapter 2 Managerial Accounting and Cost Concepts Solutions to Questions 2-1 The three major elements of product costs in a manufacturing company are direct materials, direct labor, and manufacturing overhead. 2-2 a. Direct materials are an i
