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Solution Manual for Managerial Accounting,
18th Edition
By Ray Garrison, Eric Noreen and Peter Brewer
Verified Chapter's 1 - 16 | Complete
Table of Contents
Chapter One: Managerial Accounting and Cost Concepts Chapter
Two: Job-Order Costing: Calculating Unit Product Costs
Chapter Three: Job-Order Costing: Cost Flows and External Reporting Chapter
Four: Process Costing
Chapter Five: Cost-Volume-Profit Relationships
Chapter Six: Variable Costing and Segment Reporting: Tools for Management
Chapter Seven: Activity-Based Costing: A Tool to Aid Decision Making Chapter
Eight: Master Budgeting
Chapter Nine: Flexible Budgets and Performance Analysis
Chapter Ten: Standard Costs and Variances
Chapter Eleven: Responsibility Accounting Systems Chapter
Twelve: Strategic Performance Measurement
Chapter Thirteen: Differential Analysis: The Key to Decision Making Chapter
Fourteen: Capital Budgeting Decisions
Chapter Fifteen: Statement of Cash Flows Chapter
Sixteen: Financial Statement Analysis

Chapter 1
Managerial Accounting and Cost Concepts
Questions
1-1 The three major types of product costs in a 1-4

manufacturing company are direct materials, direct a. Variable cost: The variable cost per unit is
labor, and manufacturing overhead. constant, but total variable cost changes in
direct proportion to changes in volume.
1-2 b. Fixed cost: The total fixed cost is constant
a. Direct materials are an integral part of a within the relevant range. The average fixed cost
finished product and their costs can be per unit varies inversely with changes in
conveniently traced to it. volume.
b. Indirect materials are generally small items c. Mixed cost: A mixed cost contains both
of material such as glue and nails. They may be an variable and fixed cost elements.
integral part of a finished product but their costs can
be traced to the product only at great cost or 1-5
inconvenience. a. Unit fixed costs decrease as the activity level
c. Direct labor consists of labor costs that can increases.
be easily traced to particular products. b. Unit variable costs remain constant as the
Direct labor is also called ―touch labor.‖ activity level increases.
d. Indirect labor consists of the labor costs of c. Total fixed costs remain constant as the
janitors, supervisors, materials handlers, and other activity level increases.
factory workers that cannot be conveniently traced d. Total variable costs increase as the activity
to particular products. These labor costs are level increases.
incurred to support production, but the workers
involved do not directly work on the product. 1-6
e. Manufacturing overhead includes all a. Cost behavior: Cost behavior refers to the way
manufacturing costs except direct materials and in which costs change in response to changes
direct labor. Consequently, manufacturing overhead in a measure of activity such as sales volume,
includes indirect materials and indirect labor as well production volume, or orders processed.
as other manufacturing costs. b. Relevant range: The relevant range is the
range of activity within which assumptions
1-3 A product cost is any cost involved in about variable and fixed cost behavior are
purchasing or manufacturing goods. In the case of valid.
manufactured goods, these costs consist of direct
materials, direct labor, and manufacturing overhead. 1-7 An activity base is a measure of
A period cost is a cost that is taken directly to the whatever causes the incurrence of a variable cost.
income statement as an expense in the period in Examples of activity bases include units
which it is incurred. produced, units sold, letters typed, beds in a
hospital, meals served in a cafe, service calls
made, etc.
1-8 The linear assumption is reasonably

valid providing that the cost formula is used
only within the relevant range.
1-9 A discretionary fixed cost has a fairly 1-11 The traditional approach organizes costs by
short planning horizon—usually a year. Such costs function, such as production, selling, and
arise from annual decisions by management to administration. Within a functional area, fixed and
spend on certain fixed cost items, such as variable costs are intermingled. The contribution
advertising, research, and management approach income statement organizes costs by
development. A committed fixed cost has a long behavior, first deducting variable expenses to obtain
planning horizon—generally many years. Such contribution margin, and then deducting fixed
costs relate to a company’s investment in facilities, expenses to obtain net operating income.
equipment, and basic organization. Once such costs
have been incurred, they are ―locked in‖ for many 1-12 The contribution margin is total sales
years. revenue less total variable expenses.
1-10 Yes. As the anticipated level of activity 1-13 A differential cost is a cost that differs
changes, the level of fixed costs needed to support between alternatives in a decision. A sunk cost is a
operations may also change. Most fixed costs are cost that has already been incurred and cannot be
adjusted upward and downward in large steps, rather altered by any decision taken now or in the future.
than being absolutely fixed at one level for all ranges An opportunity cost is the potential benefit that is
of activity. given up when one alternative is selected over
another.
1-14 No, differential costs can be either variable

or fixed. For example, the alternatives 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.
Managerial Accounting 18th Edition, Solutions Manual,

Chapter 1: Applying Excel
The completed worksheet is shown below.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 3

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.]
Managerial Accounting 18th Edition, Solutions Manual, Chapter 1

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 change
because the variable selling expense is deducted after the gross margin, not
before it on the traditional format income statement.

2. The new worksheet appears below:

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 $5,000 to $5,500,
because both of its components—sales and variable costs—increased by 10%.
The net operating income increased by more than 10%, from $1,000 to
$1,500, because even though sales and variable expenses increased by 10%,
the fixed costs did not increase by 10%.
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The Foundational 15
1. Direct materials............................................. $ 6.00
Direct labor................................................... 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) ........................ 10,000
Total variable manufacturing cost (a) × (b) ..... $110,000
Average fixed manufacturing overhead per unit
(c)....................................................... $4.00
Number of units produced (d) ........................ 10,000
Total fixed manufacturing cost (c) × (d) ......... 40,000
Total product (manufacturing) cost................. $150,000
Note: The average fixed manufacturing overhead cost per unit of $4.00 is valid
for only one level of activity—10,000 units produced.
2. Sales commissions......................................... $1.00

Variable administrative expense ..................... 0.50
Variable selling and administrative per unit ..... $1.50
Variable selling and admin. per unit (a)........... $1.50

Number of units sold (b)................................ 10,000
Total variable selling and admin. expense
(a) × (b) ................................................. $15,000
Average fixed selling and administrative
expense per unit ($3 fixed selling + $2
fixed admin.) (c) ......................................... $5.00
Number of units sold (d)................................ 10,000
Total fixed selling and administrative
expense (c) × (d) ....................................... 50,000
Total period (nonmanufacturing) cost ............. $65,000
Note: 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 Foundational 15 (continued)
3. Direct materials .......................................... $ 6.00
Direct labor ................................................ 3.50
Variable manufacturing overhead ................ 1.50
Sales commissions...................................... 1.00
Variable administrative expense................... 0.50
Variable cost per unit sold ........................... $12.50
4. Direct materials .......................................... $ 6.00

Direct labor ................................................ 3.50
Variable manufacturing overhead ................ 1.50
Sales commissions...................................... 1.00
Variable administrative expense................... 0.50
Variable cost per unit sold ........................... $12.50
5. Variable cost per unit sold (a)...................... $12.50

Number of units sold (b)............................. 8,000
Total variable costs (a) × (b)....................... $100,000
6. Variable cost per unit sold (a)...................... $12.50

Number of units sold (b)............................. 12,500
Total variable costs (a) × (b)....................... $156,250
7. Total fixed manufacturing cost

(see requirement 1) (a)............................ $40,000
Number of units produced (b) ..................... 8,000
Average fixed manufacturing cost per unit
produced (a) ÷ (b) .................................. $5.00

(see requirement 1) (a)............................ $40,000
Number of units produced (b) ..................... 12,500
produced (a) ÷ (b) .................................. $3.20

(see requirement 1) ................................. $40,000
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(see requirement 1) ................................. $40,000
11. Variable overhead per unit (a)....................... $1.50

Number of units produced (b) ....................... Total 8,000
variable overhead cost (a) × (b)............ $12,000
Total fixed overhead (see requirement 1) ....... 40,000
Total manufacturing overhead cost ................ $52,000
Total manufacturing overhead cost (a)........... $52,000

Number of units produced (b) ....................... 8,000
Manufacturing overhead per unit (a) ÷ (b)..... $6.50
12. Variable overhead per unit (a)....................... $1.50

Total manufacturing overhead cost ................ $58,750
Total manufacturing overhead cost (a)........... $58,750

Manufacturing overhead per unit (a) ÷ (b)..... $4.70
13. Selling price per unit...................................... $22.00

Variable cost per unit sold
(see requirement 4) ....................................... 12.50
Contribution margin per unit .......................... $ 9.50

14. Direct materials per unit ............................... $6.00
Direct labor per unit ..................................... 3.50
Direct manufacturing cost per unit................. $9.50
Direct manufacturing cost per unit (a) $9.50

Total direct manufacturing cost (a) × (b) ....... $104,500
Variable overhead per unit (a) ....................... $1.50

Total indirect manufacturing cost ................... $56,500
15. Direct materials per unit ............................... $6.00

Direct labor per unit ..................................... 3.50
Variable manufacturing overhead per unit ...... 1.50
Incremental cost per unit produced ............... $11.00
Note: Variable selling and administrative expenses are variable with respect
to the number of units sold, not the number of units produced.
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Exercise 1-1 (15 minutes)
Direct Indirect
Cost Cost Object Cost Cost
1. The wages of pediatric The pediatric
nurses department X
2. Prescription drugs A particular patient X
3. Heating the hospital The pediatric
department X
4. The salary of the head The pediatric
of pediatrics department X
5. The salary of the head A particular pediatric
of pediatrics patient X
6. Hospital chaplain’s A particular patient
salary X
7. Lab tests by outside A particular patient
contractor X
8. Lab tests by outside A particular department
contractor
X

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 salary of the assembly shop’s supervisor: manufacturing overhead.
6. The salary of the company’s accountant: administrative.
7. Depreciation on equipment used to test assembled computers before release

to customers: manufacturing overhead.
8. Rent on the facility in the industrial park: a combination of manufacturing

overhead, selling, and administrative. The rent would most likely be prorated
on the basis of the amount of space occupied by manufacturing, selling, and
administrative operations.
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Product Period
Cost Cost
1. Depreciation on salespersons’ cars ........................ X
2. Rent on equipment used in the factory .................. X
3. Lubricants used for machine maintenance.............. X
4. Salaries of personnel who work in the finished
goods warehouse............................................... X
5. Soap and paper towels used by factory workers at
the end of a shift ............................................... X
6. Factory supervisors’ salaries.................................. X
7. Heat, water, and power consumed in the factory ... X
8. Materials used for boxing products for shipment
overseas (units are not normally boxed).............. X
9. Advertising costs .................................................. X
10. Workers’ compensation insurance for factory
employees......................................................... X
11. Depreciation on chairs and tables in the factory
lunchroom.........................................................
X
12. The wages of the receptionist in the administrative
offices...............................................................
X
13. Cost of leasing the corporate jet used by the
company's executives ........................................ X
14. The cost of renting rooms at a Florida resort for the
annual sales conference ..................................... X
15. The cost of packaging the company’s product ........ X

.

1. Cups of Coffee Served
in a Week
2,000 2,100 2,200
Fixed cost ................................ $1,200 $1,200 $1,200
Variable cost ............................ 440 462 484
Total cost ................................ $1,640 $1,662 $1,684
Average cost per cup served * .. $0.820 $0.791 $0.765
* Total cost ÷ cups of coffee served in a week
2. The average cost of a cup of coffee decreases as the number of cups of coffee
served increases because the fixed cost is spread over more cups of coffee.
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Differential Sunk Opportunity
Item Cost Cost Cost
1. Cost of the old X-ray machine.... X
2. The salary of the head of the
Radiology Department ............
3. The salary of the head of the
Laboratory Department...........
4. Cost of the new digital X-ray
machine ................................ X
5. Rent on the space occupied by
Radiology ..............................
6. The cost of maintaining the old
machine ................................ X
7. Benefits from a new DNA
analyzer................................. X
8. Cost of electricity to run the X-
ray machines ......................... X
Note: The costs of the salaries of the head of the Radiology Department and
Laboratory Department and the rent on the space occupied by Radiology are
neither differential costs, nor opportunity costs, nor sunk costs. These costs do not
differ between the alternatives and therefore are irrelevant in the decision, but they
are not sunk costs because they occur in the future.

1. Traditional income statement

Cherokee Inc.
Traditional Income Statement
Sales ($30 per unit × 20,000 units) .................... $600,000
Cost of goods sold
($24,000 + $180,000 – $44,000) ..................... 160,000
Gross margin..................................................... 440,000
Selling and administrative expenses:
Selling expenses
(($4 per unit × 20,000 units) + $40,000) ...... $120,000
Administrative expenses
(($2 per unit × 20,000 units) + $30,000) ...... 70,000 190,000
Net operating income ........................................ $250,000
2. Contribution format income statement

Cherokee Inc.
Contribution Format Income Statement
Sales ($30 per unit × 20,000 units) .................... $600,000
Variable expenses:
Cost of goods sold
($24,000 + $180,000 – $44,000) .................. $160,000
Selling expenses ($4 per unit × 20,000 units)... 80,000
($2 per unit × 20,000 units) ......................... 40,000 280,000
Contribution margin........................................... 320,000
Fixed expenses:
Selling expenses ............................................. 40,000
Administrative expenses .................................. 30,000 70,000
Net operating income ........................................ $250,000
. © ...

1a. The total direct manufacturing cost incurred is computed as follows:
Direct materials per unit ............................. $7.00
Direct labor per unit ................................... 4.00
Direct manufacturing cost per unit (a) ......... $11.00
Number of units produced and sold (b) ....... 20,000
Total direct manufacturing cost (a) × (b) ..... $220,000
1b. The total indirect manufacturing cost incurred is computed as follows:

Variable manufacturing overhead per unit.... $1.50
Fixed manufacturing overhead per unit........ 5.00
Indirect manufacturing cost per unit (a) ...... $6.50
Total indirect manufacturing cost (a) × (b) .. $130,000
Note: The average fixed manufacturing overhead cost per unit of $5.00 is
valid for only one level of activity—20,000 units produced.
2a. The total manufacturing cost that is directly traceable to the Manufacturing
Department is computed as follows:
Direct materials per unit ............................. $7.00
Direct labor per unit ................................... 4.00
Variable manufacturing overhead per unit.... 1.50
Fixed manufacturing overhead per unit........ 5.00
Total manufacturing cost per unit (a)........... $17.50
Total direct costs (a) × (b).......................... $350,000
2b. None of the manufacturing costs should be treated as indirect costs when the
cost object is the Manufacturing Department.

Exercise 1-7 (continued)
3a. The first step in calculating the total direct selling expense is to determine the
fixed portion of the sales representatives’ compensation as follows:
Fixed selling expense per unit (a) ............... $3.50
Number of units sold (b)............................ 20,000
Total fixed selling expense (a) × (b) ........... $70,000
Total fixed selling expense (a) .................... $70,000
Advertising expenditures (b) ...................... $50,000
Total fixed portion of the sales representatives’
compensation (a) ‒ (b) ... $20,000
The second step is to calculate the total direct selling expense that is traceable
to individual sales representatives as follows:
Sales commissions per unit (a)................... $1.00

Number of units sold (b)............................ 20,000
Total sales commission (a) × (b) ................ $20,000
Fixed portion of sales representatives’
compensation ......................................... 20,000
Total direct selling expense ........................ $40,000
3b. The total indirect selling expense that cannot be traced to individual sales
representatives is $50,000. The advertising expenditures cannot be traced to
specific sales representatives.
4. No. Kubin’s administrative expenses could be direct or indirect depending on

the cost object. For example, the chief financial officer’s salary would be an
indirect cost if the cost object is units of production; however, his salary
would be a direct cost if the cost object is the Finance Department that he
oversees.
. © ...

Direct labor................................................... 4.00

Average fixed manufacturing overhead per unit
(c)....................................................... $5.00
Number of units produced (d) ........................ Total 20,000
fixed manufacturing cost (c) × (d) ......... 100,000
Total product cost.......................................... $350,000
Note: The average fixed manufacturing overhead cost per unit of $5.00 is valid
for only one level of activity—20,000 units produced.


(a) × (b) ................................................. $30,000
Average fixed selling and administrative
expense per unit ($3.50 fixed selling +
$2.50 fixed administrative) (c) ..................... $6.00
Number of units sold (d)................................ 20,000
expense (c) × (d) ....................................... 120,000
Total period cost............................................ $150,000
Note: The average fixed selling and administrative expense per unit of
$6.00 is valid for only one level of activity—20,000 units sold.

Direct labor................................................... 4.00

Total fixed manufacturing cost (see requirement 1)
........................................... 100,000
Total product cost.......................................... $375,000


(a) × (b) ................................................. $27,000
expense (see requirement 2)....................... 120,000
Total period cost............................................ $147,000
. © ...

1. Direct materials ....................................... $ 7.00
Direct labor ............................................. 4.00
Variable manufacturing overhead ............. 1.50
Sales commissions................................... 1.00
Variable administrative expense................ 0.50
Variable cost per unit sold ........................ $14.00

Direct labor ............................................. 4.00
3. Variable cost per unit sold (a)................... $14.00

Number of units sold (b).......................... 18,000
Total variable costs (a) × (b).................... $252,000
4. Variable cost per unit sold (a)................... $14.00

Number of units sold (b).......................... 22,000
Total variable costs (a) × (b).................... $308,000
Note: The key to answering questions 5 through 8 is to calculate the total fixed
manufacturing overhead costs as follows:
Average fixed manufacturing overhead

cost per unit (a) .................................... $5.00
Number of units produced (b) .................. 20,000
Total fixed manufacturing overhead (a) × (b)
....................................................... $100,000
Note: The average fixed manufacturing overhead cost per unit of $5.00 is valid for
only one level of activity—20,000 units produced.
Once students understand that total fixed manufacturing overhead is

$100,000, questions 5 through 8 are answered as follows:
.

5. The average fixed manufacturing cost per unit is:

Total fixed manufacturing overhead (a)..... $100,000
produced (rounded) (a) ÷ (b)................ $5.56
6. The average fixed manufacturing cost per unit is:

Total fixed manufacturing overhead (a)..... $100,000
produced (rounded) (a) ÷ (b)................ $4.55
7. The total fixed manufacturing overhead remains unchanged at $100,000.
8. The total fixed manufacturing overhead remains unchanged at $100,000.
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Direct labor ............................................. 4.00
Total incremental cost.............................. $12.50

Direct labor ............................................. 4.00
3. Because the 200 units to be sold to the new customer have already been
produced, the incremental manufacturing cost per unit is zero. The variable
manufacturing costs incurred to make these units have already been
incurred and, as such, are sunk costs.
4. Sales commission .................................... $1.00


1. The company’s variable cost per unit is:
$180,000
=$6 per unit.
30,000 units
The completed schedule is as follows:
Units produced and sold

30,000 40,000 50,000
Total costs:
Variable cost.............. $180,000 $240,000 $300,000
Fixed cost.................. 300,000 300,000 300,000
Total costs ................. $480,000 $540,000 $600,000
Cost per unit:
Variable cost.............. $ 6.00 $ 6.00 $ 6.00
Fixed cost.................. 10.00 7.50 6.00
Total cost per unit ...... $16.00 $13.50 $12.00
2. The company’s contribution format income statement is:

Sales (45,000 units × $16 per unit)........................ $720,000
Variable expenses (45,000 units × $6 per unit) ....... 270,000
Contribution margin............................................... 450,000
Fixed expense ....................................................... 300,000
Net operating income ............................................ $150,000
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1. The computations for parts 1a through 1e are as follows:
a. The cost of batteries in Raw Materials:
Beginning raw materials inventory............. 0
Plus: Battery purchases ............................ 8,000
Batteries available .................................... 8,000
Minus: Batteries withdrawn....................... 7,600
Ending raw materials inventory (a) ............ 400
Cost per battery (b).................................. $80
Raw materials on April 30th (a) × (b) ......... $32,000
b. The cost of batteries in Work in Process:

Beginning work in process inventory.......... 0
Plus: Batteries withdrawn for production.... 7,500
Minus: Batteries transferred to finished
goods (7,500 × 90%) ............................ 6,750
Ending work in process inventory (a)......... 750
Work in process on April 30th (a) × (b) ...... $60,000
c. The cost of batteries in Finished Goods:

Beginning finished goods inventory ........... 0
Plus: Batteries transferred in from work in
process (see requirement b)................... 6,750
Minus: Batteries transferred out to cost of
goods sold (6,750 × (100% ‒ 30%)) ...... 4,725
Ending finished goods inventory (a) .......... 2,025
Finished goods on April 30th (a) × (b)........ $162,000

d. The cost of batteries in Cost of Goods Sold:

Number of batteries (see requirement c)
(a) ........................................................ 4,725
Cost of goods sold for April (a) × (b)......... $378,000
e. The cost of batteries included in selling expense:

Number of batteries (a) ............................ 100
Selling expense for April (a) × (b) ............. $8,000
2. Raw Materials, Work in Process, and Finished Goods would appear on the
balance sheet. Cost of Goods Sold and Selling Expense would appear on the
income statement.
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1. True. The variable manufacturing cost per unit will remain the same within
the relevant range.
2. False. The total fixed manufacturing cost will remain the same within the
relevant range.
3. True. The total variable manufacturing cost will increase, so the total
manufacturing cost will increase too.
4. True. The average fixed manufacturing cost per unit will decrease as the
level of activity increases.
5. False. The total variable manufacturing cost will increase (rather than
decrease) as the activity level increases.
6. False. The variable manufacturing cost per unit will remain the same, but the
average fixed manufacturing cost per unit will decrease as the level of
activity increases.
7. True. The variable manufacturing cost per unit of $28 will stay constant
within the relevant range. The $28 figure is computed as follows:
Total manufacturing cost per unit (a) .................... $70.00
Variable manufacturing cost percentage (b) .......... 40%
Variable manufacturing cost per unit (a) × (b)....... $28.00
8. False. The total fixed manufacturing cost of $420,000 does not change within
the relevant range. The $420,000 figure is computed as follows:
Total manufacturing cost per unit (a) ........ $70.00

Variable manufacturing cost per unit (b) ... 28.00
(a) ‒ (b) ............................................... $42.00
Number of units produced........................ × 10,000
Total fixed manufacturing cost.................. $420,000

9. True. The underlying computations are as follows:
Variable manufacturing cost per unit (see
requirement 7) (a) ................................. $28.00
Number of units produced (b) ................... 10,050
Total variable manufacturing cost (a) × (b) $281,400
Total fixed manufacturing cost (see
requirement 8)....................................... 420,000
Total manufacturing cost........................... $701,400

Total fixed manufacturing cost (see requirement 8)
(a)........................................................................................ $420,000
Number of units produced (b) .................................. 10,050
Average fixed manufacturing cost per unit (a) ÷ (b) .. $41.79
11. False. The total variable manufacturing cost will equal $281,400,
computed as follows:
requirement 7) (a) ............................................ $28.00
Number of units produced (b) .............................. 10,050
Total variable manufacturing cost (a) × (b) ........... $281,400

requirement 7).................................................. $28.00
Average fixed manufacturing cost per unit (see
requirement 10)................................................ 41.79
Total manufacturing cost per unit ......................... $69.79
. © ...

Cost Classifications for:
(1) (3)
Predicting Preparing (4)
Cost (2) Financial Decision
Name of the Cost behavior Manufacturers Statements Making
Rental revenue forgone, $30,000
per year..................................... None None None Opportunity cost
Direct materials cost, $80 per unit . Variable Direct materials Product
Rental cost of warehouse, $500
per month.................................. Fixed None Period
Rental cost of equipment, $4,000 Manufacturing
per month.................................. Fixed overhead Product
Direct labor cost, $60 per unit ....... Variable Direct labor Product
Depreciation of the annex space, Manufacturing
$8,000 per year ......................... Fixed overhead Product Sunk cost
Advertising cost, $50,000 per year. Fixed None Period
Supervisor's salary, $3,500 per Manufacturing
month ....................................... Fixed overhead Product
Electricity for machines, $1.20 per Manufacturing
unit .............................................. Variable overhead Product
Shipping cost, $9 per unit.............. Variable None Period
Return earned on investments,
$3,000 per year ......................... None None None Opportunity cost

The Alpine House, Inc.
Sales ................................................................ $150,000
Cost of goods sold
($30,000 + $100,000 – $40,000) ..................... 90,000
Gross margin..................................................... 60,000
Selling expenses (($50 per unit × 200 pairs of
skis*) + $20,000)......................................... $30,000
Administrative expenses (($10 per unit × 200
pairs of skis) + $20,000)............................... 22,000 52,000
Net operating income ........................................ $ 8,000
*$150,000 sales ÷ $750 per pair of skis = 200 pairs of skis.

The Alpine House, Inc.
Sales ................................................................ $150,000
Variable expenses:
Cost of goods sold
($30,000 + $100,000 – $40,000) .................. $90,000
Selling expenses
($50 per unit × 200 pairs of skis) .................. 10,000
($10 per unit × 200 pairs of skis) .................. 2,000 102,000
Fixed expenses:
Selling expenses ............................................. 20,000
Administrative expenses .................................. 20,000 40,000
. © ...

3. Since 200 pairs of skis were sold and the contribution margin totaled
$48,000 for the quarter, the contribution margin per unit was $240 ($48,000 ÷
200 pair of skis = $240 per pair of skis).

1. The differential cost is computed as follows:
Cost of a new model 300 (a) ................................ $313,000

Cost of a new model 200 (b) ................................ $275,000
Differential cost (a) ‒ (b) ..................................... $38,000
2. The sunk cost is the cost of the machine purchased seven years ago for
$319,000.
3. The opportunity cost is the $374,000 that could have been earned by
pursuing the forgone option.
. © ...

Cost Classifications for:
(2)
(1) Preparing
Predicting Cost Financial
Cost Item Behavior Statements
1. Hamburger buns at a
Wendy’s restaurant .. Variable Product
2. Advertising by a dental
office....................... Fixed Period
3. Apples processed and
canned by Del Monte Variable Product
4. Shipping canned
apples from a Del
Monte plant to
customers................ Variable Period
5. Insurance on a Bausch
& Lomb factory
producing contact
lenses...................... Fixed Product
6. Insurance on Nucor’s
corporate
headquarters ........... Fixed Period
7. Salary of a supervisor
overseeing production
of printers
at Ricoh................... Fixed Product
8. Commissions paid to
automobile
salespersons ............ Variable Period
9. Depreciation of factory
lunchroom facilities at
a General Electric
plant ....................... Fixed Product
10. Steering wheels
installed in Tesla
electric vehicles........ Variable Product

Problem 1-18 (18 minutes)
1. The direct costs of the Apparel Department are as follows:

Apparel Department cost of sales—Evendale Store $ 90,000
Apparel Department sales commission—Evendale
Store ................................................................ 7,000
Apparel Department manager’s salary—Evendale
Store ................................................................ 8,000
Total direct costs for the Apparel Department ........ $105,000
2. The direct costs of the Evendale Store are as follows:

Apparel Department cost of sales—Evendale Store $ 90,000
Store manager’s salary—Evendale Store................ 12,000
Store................................................................ 7,000
Store utilities—Evendale Store .............................. 11,000
Apparel Department manager’s salary—Evendale
Store................................................................ 8,000
Janitorial costs—Evendale Store ........................... 9,000
Total direct costs for the Evendale Store ............... $137,000
3. The direct costs in the Apparel Department that are also variable with respect
to departmental sales is computed as follows:
Apparel Department cost of sales—Evendale Store $90,000
Store ................................................................ 7,000
Total direct costs for the Apparel Department that
are also variable costs ....................................... $97,000
. © ...


Todrick Company Contribution
Format Income Statement
Sales ................................................................ $300,000
Variable expenses: Cost
of goods sold
($20,000 + $200,000 – $7,000) .................... $213,000
Selling expense............................................... 15,000
Administrative expense.................................... 12,000 240,000
Fixed expenses:
Selling expense............................................... 30,000
Administrative expense.................................... 12,000 42,000
The variable administrative expense shown above ($12,000) is computed as

follows:
Sales (a) .....................................................$300,000
Contribution margin (b)..................................$60,000
Total variable costs (a) ‒ (b)........................ $240,000
Total variable costs (a)................................ $240,000
Cost of goods sold .......................................$213,000
Variable selling expense ............................... 15,000 Cost of
goods sold plus variable selling
expense (b) ............................................. $228,000
Variable administrative expense (a) ‒ (b) ..... $12,000

Problem 1-19 (continued)
The fixed selling expense shown above ($30,000) is computed as follows:
Contribution margin (a)............................ $60,000
Net operating income (b) ......................... $18,000
Total fixed costs (a) ‒ (b) ......................... $42,000
Total fixed costs (a) ................................. $42,000
Fixed administrative expense (b) .............. $12,000
Fixed selling expense (a) ‒ (b) ................. $30,000

Todrick Company
Sales ................................................................ $300,000
Cost of goods sold
($20,000 + $200,000 – $7,000) ....................... 213,000
Gross margin..................................................... 87,000
Selling expense
($15,000 + $30,000) .................................... $45,000
Administrative expense
($12,000 + $12,000) .................................... 24,000 69,000
3. The selling price per unit is $300,000 ÷ 1,000 units sold = $300.
4. The variable cost per unit is $240,000 ÷ 1,000 units sold = $240.
5. The contribution margin per unit is $300 ‒ $240 = $60.
6. The contribution format is more useful because it organizes costs based on

their cost behavior. The contribution format enables managers to quickly
calculate how variable costs will change in response to changes in unit sales.
. © ...

Direct or Indirect Variable or Fixed
Direct or Indirect Cost of Particular with Respect to the
Cost of the Meals Seniors Served Number of Seniors
on Wheels by the Meals on Served by the Meals
Program Wheels Program on Wheels Program
Item Description Direct Indirect Direct Indirect Variable Fixed
a. The cost of leasing the Meals-On-Wheels van..... X X X
b. The cost of incidental supplies such as salt,
pepper, napkins, and so on ............................ X X* X
c. The cost of gasoline consumed by the Meals-On-
Wheels van................................................... X X X
d. The rent on the facility that houses Madison
Seniors Care Center, including the Meals-On-
Wheels program............................................ X X X
e. The salary of the part-time manager of the
Meals-On-Wheels program............................. X X X
f. Depreciation on the kitchen equipment used in
the Meals-On-Wheels program ....................... X X X
g. The hourly wages of the caregiver who drives
the van and delivers the meals....................... X X* X
h. The costs of complying with health safety
regulations in the kitchen............................... X X X
i. The costs of mailing letters soliciting donations
to the Meals-On-Wheels program ................... X X X
*These costs could be direct costs of serving particular seniors.

1. Marwick’s Pianos, Inc.
Traditional Income Statement For
the Month of August
Sales (40 pianos × $3,125 per piano) ............... $125,000
Cost of goods sold
(40 pianos × $2,450 per piano) ..................... 98,000
Gross margin .................................................. 27,000
Selling expenses:
Advertising ................................................ $ 700
Sales salaries and commissions
[$950 + (8% × $125,000)] ...................... 10,950
Delivery of pianos
(40 pianos × $30 per piano)..................... 1,200
Utilities ...................................................... 350
Depreciation of sales facilities ..................... 800
Total selling expenses ................................... 14,000
Administrative expenses:
Executive salaries....................................... 2,500
Insurance .................................................. 400
Clerical
[$1,000 + (40 pianos × $20 per piano)] ... 1,800
Depreciation of office equipment................. 300
Total administrative expenses ........................ 5,000
Total selling and administrative expenses.......... 19,000
Net operating income ...................................... $ 8,000
. © ...

2. Marwick’s Pianos, Inc.
For the Month of August
Per
Total Piano
Sales (40 pianos × $3,125 per piano) ................. $125,000 $3,125
Variable expenses:
Cost of goods sold
(40 pianos × $2,450 per piano) .................... 98,000 2,450
Sales commissions (8% × $125,000) ............... 10,000 250
Delivery of pianos (40 pianos × $30 per piano) 1,200 30
Clerical (40 pianos × $20 per piano) ................ 800 20
Total variable expenses...................................... 110,000 2,750
Contribution margin........................................... 15,000 $ 375
Fixed expenses:
Advertising ..................................................... 700
Sales salaries.................................................. 950
Utilities........................................................... 350
Depreciation of sales facilities .......................... 800
Executive salaries ........................................... 2,500
Insurance....................................................... 400
Clerical........................................................... 1,000
Depreciation of office equipment ..................... 300
Total fixed expenses .......................................... 7,000
3. Fixed costs remain constant in total but vary on a per unit basis inversely with
changes in the activity level. As the activity level increases, for example, the
fixed costs will decrease on a per unit basis. Showing fixed costs on a per unit
basis on the income statement might mislead management into thinking that
the fixed costs behave in the same way as the variable costs. That is,
management might be misled into thinking that the per unit fixed costs would
be the same regardless of how many pianos were sold during the month. For
this reason, fixed costs generally are shown only in totals on a contribution
format income statement.
.

1. The total manufacturing overhead cost is computed as follows:
Direct labor cost (a)............................................. $15,000

Direct labor as a percentage of total conversion
costs (b)........................................................... 30%
Total conversion cost (a) ÷ (b) ............................. $50,000
Total conversion cost (a)...................................... $50,000

Direct labor cost (b)............................................. $15,000
Total manufacturing overhead cost (a) ‒ (b).......... $35,000
2. The total direct materials cost is computed as follows:
Direct labor cost (a)............................................. $15,000

Direct labor as a percentage of total prime costs
(b) ................................................................... 40%
Total prime cost (a) ÷ (b) .................................... $37,500
Total prime cost (a) ............................................. $37,500

Direct labor cost (b)............................................. $15,000
Total direct materials cost (a) ‒ (b)....................... $22,500
3. The total amount of manufacturing cost is computed as follows:
Direct materials cost ............................................ $22,500

Direct labor cost .................................................. 15,000
Manufacturing overhead cost................................ 35,000
Total manufacturing cost...................................... $72,500
4. The total variable selling and administrative cost is computed as

follows:
Total sales (a) ..................................................... $120,000

Sales commission percentage (b) ......................... 5%
Total variable selling and administrative cost (a)
. © ...

× (b)................................................................ $6,000

5. The total variable cost is computed as follows:

Direct materials cost ............................................ $22,500
Direct labor cost .................................................. 15,000
Sales commissions ............................................... 6,000
Total variable cost................................................ $43,500
6. The total fixed cost is computed as follows:
Total selling and administrative expenses

(a) ........................................................ $18,000
Sales commissions (b) .............................. $6,000
Total fixed selling and administrative expense
(a) ‒ (b)................................... $12,000
Total fixed manufacturing overhead ........... 35,000
Total fixed cost ......................................... $47,000
7. The total contribution margin is calculated as follows:

Sales (a) ............................................................. $120,000
Variable costs (b)................................................. $43,500
Contribution margin (a) ‒ (b) ............................... $76,500
. © ...

Note to the Instructor: There may be some exceptions to the answers below. The purpose of this problem is
to get the student to start thinking about cost behavior and cost purposes; try to avoid lengthy discussions
about how a particular cost is classified.
Manufacturing
Variable or Selling Administrative (Product) Cost
Cost Item Fixed Cost Cost Direct Indirect
1. Property taxes, factory ................................ F X
2. Boxes used for packaging detergent
produced by the company......................... V X
3. Salespersons’ commissions .......................... V X
4. Supervisor’s salary, factory .......................... F X
5. Depreciation, executive autos ...................... F X
6. Wages of workers assembling computers ..... V X
7. Insurance, finished goods warehouses ......... F X
8. Lubricants for production equipment ............ V X
9. Advertising costs ......................................... F X
10. Microchips used in producing calculators ...... V X
11. Shipping costs on merchandise sold ............. V X
12. Magazine subscriptions, factory lunchroom ... F X
13. Thread in a garment factory ........................ V X
14. Executive life insurance ............................... F X

Manufacturing
Variable or Selling Administrative (Product) Cost
Cost Item Fixed Cost Cost Direct Indirect
15. Ink used in textbook production................... V X
16. Fringe benefits, materials handling workers .. V X
17. Yarn used in sweater production .................. V X
18. Wages of receptionist, executive offices ....... F X
. © ...

1a. The total product cost is computed as follows:
Direct materials ................................................... $ 69,000

Direct labor ......................................................... 35,000
Total manufacturing overhead .............................. 43,000
Total product cost ................................................ $147,000
1b. The total period cost is computed as follows:
Total selling expense ........................................... $30,000

Total administrative expense ................................ 29,000
Total period cost .................................................. $59,000
2a. The total direct manufacturing cost is computed as follows:

Direct labor ......................................................... 35,000
Total direct manufacturing cost............................. $104,000
2b. The total indirect manufacturing cost is computed as follows:
Variable manufacturing overhead.......................... $15,000

Fixed manufacturing overhead.............................. 28,000
Total indirect manufacturing cost .......................... $43,000
3a. The total manufacturing cost is computed as follows:

Direct labor ......................................................... 35,000
Total manufacturing cost...................................... $147,000

3b. The total nonmanufacturing cost is computed as follows:
Total selling expense ........................................... $30,000

Total administrative expense ................................ 29,000
Total nonmanufacturing cost ................................ $59,000
3c. The total conversion cost is computed as follows:
Direct labor ......................................................... $35,000

Total conversion cost ........................................... $78,000
The total prime cost is computed as follows:

Direct labor ......................................................... 35,000
Total prime cost................................................... $104,000
4a. The total variable manufacturing cost is computed as follows:

Direct labor ......................................................... 35,000
Variable manufacturing overhead.......................... 15,000
Total variable manufacturing cost ......................... $119,000
4b. The total amount of fixed cost for the company as a whole is computed as
follows:
Fixed manufacturing overhead.............................. $28,000

Fixed selling expense ........................................... 18,000
Fixed administrative expense................................ 25,000
Total fixed cost .................................................... $71,000
IF YOU WANT THIS TEST BANK OR

SOLUTION MANUAL EMAIL ME
rightmanforbloodline1@gmail.com TO RECEIVE
ALL CHAPTERS IN PDF FORMAT
IF YOU WANT THIS TEST BANK OR
SOLUTION MANUAL EMAIL ME
rightmanforbloodline1@gmail.com TO RECEIVE
ALL CHAPTERS IN PDF FORMAT
. © ...

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Solution Manual for Managerial Accounting,

Chapter One: Managerial Accounting and Cost Concepts Chapter

Two: Job-Order Costing: Calculating Unit Product Costs

Four: Process Costing

Chapter Five: Cost-Volume-Profit Relationships

Chapter Seven: Activity-Based Costing: A Tool to Aid Decision Making Chapter

Eight: Master Budgeting

Chapter Nine: Flexible Budgets and Performance Analysis

Chapter Ten: Standard Costs and Variances

Chapter Eleven: Responsibility Accounting Systems Chapter

Twelve: Strategic Performance Measurement

Chapter Thirteen: Differential Analysis: The Key to Decision Making Chapter

Fourteen: Capital Budgeting Decisions

Chapter Fifteen: Statement of Cash Flows Chapter

Sixteen: Financial Statement Analysis

1-1 The three major types of product costs in a 1-4

1-8 The linear assumption is reasonably

1-14 No, differential costs can be either variable

Managerial Accounting 18th Edition, Solutions Manual,

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 3

[Note: To display formulas in cells instead of their calculated amounts, consult

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 5

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 7

Variable manufacturing cost per unit (a) ......... $11.00

2. Sales commissions......................................... $1.00

Variable selling and admin. per unit (a)........... $1.50

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1

4. Direct materials .......................................... $ 6.00

5. Variable cost per unit sold (a)...................... $12.50

6. Variable cost per unit sold (a)...................... $12.50

7. Total fixed manufacturing cost

8. Total fixed manufacturing cost

9. Total fixed manufacturing cost

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1 9

11. Variable overhead per unit (a)....................... $1.50

Total manufacturing overhead cost (a)........... $52,000

12. Variable overhead per unit (a)....................... $1.50

Total manufacturing overhead cost (a)........... $58,750

13. Selling price per unit...................................... $22.00

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1

Direct manufacturing cost per unit (a) $9.50

Variable overhead per unit (a) ....................... $1.50

15. Direct materials per unit ............................... $6.00

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1

2. The cost of advertising in the Puget Sound Computer User newspaper:

3. The wages of employees who assemble computers from components: direct

4. Sales commissions paid to the company’s salespeople: selling.

5. The salary of the assembly shop’s supervisor: manufacturing overhead.

6. The salary of the company’s accountant: administrative.

7. Depreciation on equipment used to test assembled computers before release

8. Rent on the facility in the industrial park: a combination of manufacturing

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1

Managerial Accounting 18th Edition, Solutions Manual, Chapter 1