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1. www.testbanksuccess.com Solution Manual For Introduction to Managerial Accounting 5th Edition, Garrison, Noreen & Brewer YOU CAN FIND MORE QUESTIONS AND ANSWERS, just go HERE SOLUTIONS TO QUESTIONS Chapter 1: Managerial Accounting and Cost Concepts 1-1 Managers carry out three major activities in an organization: planning, directing and motivating, and controlling. Planning involves establishing a basic strategy, selecting a course of action, and specifying how the action will be implemented. Directing and motivating involves mobilizing people to carry out plans and run routine operations. Controlling involves ensuring that the plan is actually carried out and is appropriately modified as circumstances change. 1-2 The planning and control cycle involves formulating plans, implementing plans, measuring performance, and evaluating differences between planned and actual performance. 1-3 In contrast to financial accounting, managerial accounting: (1) focuses on the needs of managers rather than outsiders; (2) emphasizes decisions affecting the future rather than the financial consequences of past actions; (3) emphasizes relevance rather than objectivity and verifiability; (4) emphasizes timeliness rather than precision; (5) emphasizes the segments of an organization rather than summary data concerning the entire organization; (6) is not governed by GAAP; and (7) is not mandatory. 1-4 The three major elements of product costs in a manufacturing company are direct materials, direct labor, and manufacturing overhead. 1-5 a. Direct materials are an integral part of a finished product and their costs can be conveniently traced to it. b. Indirect materials are generally small items of material such as glue and nails. They may be an integral part of a finished product but their costs can be traced to the product only at great cost or inconvenience. c. Direct labor consists of labor costs that can be easily traced to particular products. Direct labor is also called ―touch labor.‖ d. Indirect labor consists of the labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products. These labor costs are incurred to support production, but the workers involved do not directly work on the product. 2. www.testbanksuccess.com e. Manufacturing overhead includes all manufacturing costs except direct materials and direct labor. Consequently, manufacturing overhead includes indirect materials and indirect labor as well as other manufacturing costs. Chapter 2: Systems Design: Job-Order Costing 2-1 By definition, manufacturing overhead consists of costs that cannot be practically traced to jobs. Therefore, if these costs are to be as- signed to jobs, they must be allocated rather than traced. 2-2 Job-order costing is used in situations where many different products or services are produced each period. Process costing is used in situations where a single, homogeneous product, such as cement, bricks, or gasoline, is produced for long periods. 2-3 The job cost sheet is used to record all costs that are assigned to a particular job. These costs include direct materials costs traced to the job, direct labor costs traced to the job, and manufacturing overhead costs applied to the job. When a job is completed, the job cost sheet is used to compute the unit product cost. 2-4 A predetermined overhead rate is used to apply overhead cost to jobs. It is computed be- fore a period begins by dividing the period‟s esti- mated total manufacturing overhead by the pe- riod‟s estimated total amount of the allocation base. Thereafter, overhead cost is applied to jobs by multiplying the predetermined overhead rate by the actual amount of the allocation base that is recorded for each job. 2-5 A sales order is issued after an agree- ment has been reached with a customer on quan- tities, prices, and shipment dates for goods. The sales order forms the basis for the production order. The production order specifies what is to be produced and forms the basis for the job cost sheet. The job cost sheet, in turn, is used to summarize the various production costs incurred to complete the job. These costs are entered on the job cost sheet from materials requisition forms, direct labor time tickets, and by applying overhead. Chapter 3: Systems Design: Activity-Based Costing 3-1 The most common methods of assigning overhead costs to products are plantwide over- head rates, departmental overhead rates, and activity-based costing. 3-2 The assumption, implicit in conventional costing systems, that overhead cost is propor- tional to direct labor, is being increasingly ques- tioned. Automation has decreased the amount of direct labor, overhead costs have increased, and companies now handle many more products that differ substantially in volume, batch size, and complexity. Activity-based costing attempts to more accurately assign overhead costs to products based on the activities required to make products and the resources consumed by those activities. 3. www.testbanksuccess.com 3-3 The departmental approach to assigning overhead cost to products usually assumes that overhead costs are proportional to direct labor- hours or machine-hours. However, overhead costs are often driven by other factors, including the number of batches run and product com- plexity, that are only loosely related, if at all, to volume. Activity-based costing attempts to more accurately assign overhead costs to products based on the activities that they cause rather than just on the direct labor-hours required to make a unit. 3-4 The hierarchical levels are: 1. Unit-level activities, which are performed each time a unit is produced. 2. Batch-level activities, which are per- formed each time a batch is handled or processed. 3. Product-level activities, which are per- formed to support specific products. 4. Facility-level activities, which sustain an organization’s general capabilities. 3-5 Activity-based costing involves two stages of overhead cost assignments. In the first stage, costs are assigned to activity cost pools. In the second stage, costs are allocated from the activity cost pools to products. Chapter 4: Systems Design: Process Costing 4-1 A process costing system should be used in situations where a homogeneous product is produced on a continuous basis. 4-2 Job-order and processing costing are similar in the following ways: 1. Job-order costing and process costing have the same basic purposes—to assign materials, labor, and overhead cost to products and to provide a mechanism for computing unit product costs. 2. Both systems use the same basic manufacturing accounts. 3. Costs flow through the accounts in basically the same way in both systems. 4-3 Cost accumulation is simpler under process costing because costs only need to be assigned to departments—not individual jobs. A company usually has a small number of processing departments, whereas a job-order costing system often must keep track of the costs of hundreds or even thousands of jobs. 4-4 In a process costing system, a Work in Process account is maintained for each processing department. 4-5 The journal entry to record the transfer of work in process from the Mixing Department to the Firing Department is: Work in Process, Firing........ XXXX Work in Process, Mixing XXXX 4. www.testbanksuccess.com Chapter 5: Cost Behavior: Analysis and Use 5-1 a. Variable cost: The variable cost per unit is constant, but total variable cost changes in direct proportion to changes in volume. b. Fixed cost: The total fixed cost is constant within the relevant range. The average fixed cost per unit varies inversely with changes in volume. c. Mixed cost: A mixed cost contains both variable and fixed cost elements 5-2 a. Unit fixed costs decrease as volume increases. b. Unit variable costs remain constant as volume increases. c. Total fixed costs remain constant as volume increases. d. Total variable costs increase as volume increases. 5-3 a. Cost behavior: Cost behavior refers to the way in which costs change in response to changes in a measure of activity such as sales volume, production volume, or orders processed. b. Relevant range: The relevant range is the range of activity within which assumptions about variable and fixed cost behavior are valid. 5-4 An activity base is a measure of whatever causes the incurrence of a variable cost. Examples of activity bases include units produced, units sold, letters typed, beds in a hospital, meals served in a cafe, service calls made, etc. 5-5 a. Variable cost: A variable cost remains constant on a per unit basis, but increases or decreases in total in direct relation to changes in activity. b. Mixed cost: A mixed cost is a cost that contains both variable and fixed cost elements. c. Step-variable cost: A step-variable cost is a cost that is incurred in large chunks, and which increases or decreases only in response to fairly wide changes in activity. AND MUCH MORE YOU CAN FIND MORE QUESTIONS AND ANSWERS, just go HERE HAVE BEST TEST RESULT! ☺☺☺ ☺ ☺☺☺ 5. www.testbanksuccess.com
