managerial accounting hilton 9th edition

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CHAPTER 2

Basic Cost Management Concepts andAccounting for Mass Customization Operations

ANSWERS TO REVIEW QESTIONS

2-1 Product costs are costs that are associated with manufactured goods until the timeperiod during which the products are sold, when the product costs becomeexpenses. Period costs are expensed during the time period in which they areincurred.

2-2 Product costs are also called inventoriable costs because they are assigned tomanufactured goods that are inventoried until a later period, when the products aresold. The product costs remain in the Wor-in-Process or !inished-"oods #nventoryaccount until the time period when the goods are sold.

2-$ The most important difference between a manufacturing firm and a service industryfirm, with regard to the classification of costs, is that the goods produced by amanufacturing firm are inventoried, whereas the services produced by a serviceindustry firm are consumed as they are produced. Thus, the costs incurred inmanufacturing products are treated as product costs until the period during whichthe goods are sold. %ost of the costs incurred in a service industry firm to produceservices are operating expenses that are treated as period costs.

2.& The five types of production processes are as follows'

(ob shop' )ow production volume* little standardi+ation* one-of-a-indproducts. xamples include custom home construction, feature filmproduction, and ship building.

atch' %ultiple products* low volume. xamples include constructioneuipment, tractor trailers, and cabin cruisers.

/ssembly line' / few ma0or products* higher volume. xamples include

itchen appliances and automobile assembly.

%ass customi+ation' igh production volume* many standardi+edcomponents* customi+ed combination of components. /n example is thecomputer industry.

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ontinuous flow' igh production volume* highly standardi+ed commodityproducts. xamples include food processing, textiles, lumber, andchemicals.

2-3 The term mass customi+ation is used to describe an industry such as the computer

industry, where large numbers of identical components are mass produced, and thenthese components are combined in a customi+ed way to customer specifications.!or example, when a customer places an order for a 4ell computer on line, thecompany assembles 0ust the components reuested by the customer, loads thereuested software, and ships the customi+ed computer system. 5iewed in thislight, the term mass customi+ation is not internally inconsistent.

2-6 The cost of idle time is treated as manufacturing overhead because it is a normalcost of the manufacturing operation that should be spread out among all of themanufactured products. The alternative to this treatment would be to charge the cost

of idle time to a particular 0ob that happens to be in process when the idle timeoccurs. #dle time often results from a random event, such as a power outage.harging the cost of the idle time resulting from such a random event to only the 0obthat happened to be in process at the time would overstate the cost of that 0ob.

2-7 8vertime premium is included in manufacturing overhead in order to spread theextra cost of the overtime over all of the products produced, since overtime often isa normal cost of the manufacturing operation. The alternative would be to charge theovertime premium to the particular 0ob in process during overtime. #n most cases,such treatment would overstate the cost of that 0ob, since it is only coincidental thata particular 0ob happened to be done on overtime. The need for overtime to completea particular 0ob results from the fact that other 0obs were completed during regularhours.

2-9 The phrase :different costs for different purposes; refers to the fact that the word:cost; can have different meanings depending on the context in which it is used.ost data that are classified and recorded in a particular way for one purpose may beinappropriate for another use.

2-< The city of Tampa would use cost information for planning when it developed abudget for its operations during the next year. #ncluded in that budget would be

pro0ected costs for police and fire protection, street maintenance, and cityadministration. /t the end of the year this budget would be used for cost control. Theactual costs incurred would be compared to pro0ected costs in the budget. ityadministrators would also use cost data in maing decisions, such as where tolocate a new fire station.

2-1= / fixed cost remains constant in total across changes in activity, whereas the totalvariable cost changes in proportion to the level of activity.


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2-11 The fixed cost per unit declines as the level of activity >or cost driver? increases. Thecost per unit is reduced because the total fixed cost, which does not change asactivity changes, is spread over a larger number of activity units.

2-12 The variable cost per unit remains constant as the level of activity >or cost driver?

changes. Total variable costs change in proportion to activity, and the additionalvariable cost when one unit of activity is added is the variable cost per unit.

2-1$ / volume-based cost driver, such as the number of passengers, causes costs to beincurred because of the uantity of service offered by the airline. /n operations-based cost driver, such as hub domination, affects costs because of the basic way in

which the airline conducts its operations. "reater control over a hub airport@sfacilities and services gives an airline greater ability to control its operating costs.

2-1& a. Aumber of students' volume-based cost driver. This characteristic of the collegerelates to the uantity of services provided.

b. Aumber of disciplines offered for study' operations-based cost driver. Thegreater the diversity in a college@s course offerings, the greater will be the costsincurred, regardless of the overall si+e of the student body.

c. Brban versus rural location' operations-based cost driver. / college@s locationwill affect the type of housing and food facilities reuired, the cost of obtainingservices, and the cost of transportation for college employees acting on behalf ofthe college.

2-13 xamples of direct costs of the food and beverage department in a hotel include themoney spent on the food and beverages served, the wages of table servicepersonnel, and the costs of entertainment in the dining room and lounge. xamplesof indirect costs of the food and beverage department include allocations of thecosts of advertising for the entire hotel, of the costs of the grounds and maintenancedepartment, and of the hotel general manager@s salary.

2-16 osts that are liely to be controllable by a city@s airport manager include the wagesof personnel hired by the airport manager, the cost of heat and light in the airportmanager@s administrative offices, and the cost of some materials consumed in theprocess of operating the airport, such as cleaning, painting, and maintenance

materials. osts that are liely to be uncontrollable by the city@s airport managerinclude depreciation of the airport facilities, fees paid by the airport to the federalgovernment for air traffic control services, and insurance for the airport employeesand patrons.


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2-17 a. Bncontrollable cost

b. ontrollable cost

c. Bncontrollable cost

2-19 8ut-of-pocet costs are paid in cash at or near the time they are incurred. /nopportunity cost is the potential benefit given up when the choice of one actionprecludes the selection of a different action.

2-1< / sun cost is a cost that was incurred in the past and cannot be altered by anycurrent or future decision. / differential cost is the difference in a cost item undertwo decision alternatives.

2.2= / marginal cost is the extra cost incurred in producing one additional unit of output.The average cost is the total cost of producing a particular uantity of product or

service, divided by the number of units of product or service produced.

2.21 The process of registering for classes varies widely among colleges anduniversities, and the responses to this uestion will vary as well. xamples ofinformation that might be useful include the credit reuirements and coursereuirements to obtain a particular degree, and a list of the prereuisites for each ofthe elective courses in a particular ma0or. Cuch information could help the studentplan an academic program over several semesters or uarters. /n example ofinformation that might create information overload is a comprehensive listing ofevery course offered by the college in the past five years.

2-22 The purchase cost of the old bar code scanners is a sun cost, since it occurred inthe past and cannot be changed by any future course of action. The manager isexhibiting a common behavioral tendency to pay too much attention to sun costs.

2-2$ a. 4irect cost

b. 4irect cost

c. #ndirect cost

d. #ndirect cost


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SO&TIONS TO E'ERCISES

DE#C 2-2& >1= %#ABTC?

The general formula for solving all three cases is as follows'

eginninginventory of

finished goods+

ost of goodsmanufacturedduring period

Fnding

inventory offinished goods

=

ost-of-goods sold

expense

Bsing this formula, we can find the missing amounts as follows'

ase# ## ###

eginning inventory of finished goods............... G 9&,===H G12,=== 7,===

/dd' ost of goods manufactured...................... &1$3 hours G2=?....................................................................... G7==

8verhead >idle time' 3 hours G2=?............................................................ 1==

Total compensation...................................................................................... G9==

DE#C 2-26 >1= %#ABTC?

1. Eegular wages >&= hours G16?....................................................................... G 6&=8vertime wages >3 hours G2=?....................................................................... 1==

Total compensation........................................................................................... G 7&=

2. 8vertime hours................................................................................................... 3 hrs.

8vertime premium per hour >G2= G16?.......................................................... G &

Total overtime premium..................................................................................... G 2=


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DE#C 2-26 >8AT#AB4?

$. lassification'

4irect labor >&3 hours G16?....................................................................... G 72=

8verhead >overtime premium' 3 hours G&?............................................. 2=Total compensation...................................................................................... G 7&=

DE#C 2-27 >$= %#ABTC?

%ass customi+ation is well suited to 4ell omputerIs operations because of the companyIsdirect-selling approach, in which customers order customi+ed computer systems, often online. Then 4ell orders 0ust the components necessary to assemble the computer systemsthat have been ordered, and delivery is made in a relatively short period of time.

DE#C 2-29 >2= %#ABTC?

1. Tire costs' Product cost, variable, direct material

2. Cales commissions' Period cost, variable

$. Wood glue' Product cost, variable, either direct material or manufacturing overhead>i.e., indirect material? depending on how significant the cost is

&. Wages of security guards' Product cost, variable, manufacturing overhead

3. Calary of financial vice-president' Period cost, fixed

6. /dvertising costs' Period cost, fixed

7. Ctraight-line depreciation' Product cost, fixed, manufacturing overhead

9. Wages of assembly-line personnel' Product cost, variable, direct labor


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DE#C 2-2< >23 %#ABTC?

1. A&E'AN+RIAA&MINMCOM,AN-SC.E+&EO/COSTO/0OO+SMAN/ACTRE+

/ORT.E-EAREN+E++ECEMBER$!1 #2'!

4irect material'Eaw-material inventory, (anuary 1......................................... G 3=,===/dd' Purchases of raw material............................................. 23=,===Eaw material available for use................................................ G$==,===4educt' Eaw-material inventory, 4ecember $1..................... 7=,===Eaw material used................................................................... G2$=,===

4irect labor.................................................................................... &==,===%anufacturing overhead'

#ndirect material....................................................................... G 1=,===

#ndirect labor............................................................................ 23,===4epreciation on plant and euipment.................................... 1==,===Btilities...................................................................................... 23,===8ther......................................................................................... $=,===Total manufacturing overhead................................................ 1


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DE#C 2-2< >8AT#AB4?

$. A&E'AN+RIAA&MINMCOM,AN-INCOMESTATEMENT

/ORT.E-EAREN+E++ECEMBER$!1 #2'!

Cales revenue.................................................................................................. G1,1=3,===)ess' ost of goods sold............................................................................... 76=,==="ross margin................................................................................................... G $&3,===Celling and administrative expenses............................................................. 11=,===#ncome before taxes........................................................................................ G 2$3,===#ncome tax expense........................................................................................ a? G&2,=== G&2,=== >b? G&2,===5ariable costs.............................................................. >c? 23,=== $=,=== >d? $3,===

Total costs.............................................................. >e? G67,=== G72,=== >f? G77,===

ost per muffler replacement'!ixed cost..................................................................... >g? G 9& >h? G 7= >i? G 6=5ariable cost................................................................ >0? 3= >? 3= >l? 3=

Total cost per muffler replacement...................... >m? G1$& >n? G12= >o? G11=

xplanatory Aotes'

>a? Total fixed costs do not vary with activity.

>c? 5ariable cost per replacement J G$=,===K6== J G3=

Total variable cost for 3== replacements J G3= 3== J G23,===

>g? !ixed cost per replacement J G&2,===K3== J G9&

>0 ? 5ariable cost per replacement J G23,===K3== J G3=


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DE#C 2-$1 >13 %#ABTC?

1. Phone bill, (anuary' G123 L >G.23 9,===?........................................ G2,123

Phone bill, !ebruary' G123 L >G.23 3,===?....................................... G1,$73

2. ost per call, (anuary' G2,123K9,===.................................................. G .266 >rounded?ost per call, !ebruary' G1,$73K3,===................................................ G .273

$. !ixed component, (anuary................................................................. G 123

5ariable component, (anuary' G.23 9,===...................................... 2,===

Total..................................................................................................... G2,123

&. Cince each phone call costs G.23, the marginal cost of maing the 6,==1st call is G.23.

3. The average cost of a phone call in (anuary >rounded? is G.266 >G2,123K9,===?.

DE#C 2-$2 >3 %#ABTC?

%artin Chrood@s expenditure is a sunkcost. #t is irrelevant to any future decision %artin maymae about the land.

DE#C 2-$$ >3 %#ABTC?

/nnual cost using uropean component' G9,


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DE#C 2-$3 >1= %#ABTC?

1. Mour decision to see the game really cost you G23, the amount forgone when yourefused to sell the ticet. / convenient way to thin about this is as follows' Moucould have sold the ticet for G23, thereby resulting in a profit on the deal of G13 >G23sales proceeds minus G1= out-of-pocet purchase cost?. #nstead, you went to thegame, which left you relieved of your G1= out-of-pocet cost. The difference betweenthe G1= reductionin your wealth and the G13profityou could have had is G23. Thus,G23 is the true cost of going to the game.

2. The G23 is an opportunity cost./t the time you made the decision to attend thegame, the G1= you actually had paid for the ticet is a sunk cost.#t is not relevant toany future decision.

DE#C 2-$6 >13 %#ABTC?

1. The marginal cost would include any food and beverages consumed by thepassenger and perhaps an imperceptible increase in fuel costs.

2. #n most cases, only the cost of the food and beverage consumed by the customerwould be a marginal cost. #t is unliely that the restaurant would need to employadditional service personnel, dishwashers, and so on.

$. The marginal cost of a flight would include the aircraft fuel, wages of the flight crew

and airport maintenance personnel, and the food and beverages consumed by thepassengers and crew.

&. The marginal cost would include the additional wages or commissions earned by thebranch ban employees and the additional electricity used for light, heat, andcomputer euipment.

3. The marginal cost of the sis would include the direct material. #t is unliely thatlabor and other costs would change with the addition of only one more product unit.


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SO&TIONS TO ,ROB&EMS

PE8)% 2-$7 >2= %#ABTC?

1. 1. #ncome statement

2. alance sheet$. #ncome statement&. #ncome statement3. ost-of-goods-manufactured schedule6. #ncome statement7. ost-of-goods-manufactured schedule9. ost of-goods-manufactured scheduleor very little? inventory. Eetailers and wholesalers normally stocconsiderable inventory. %anufacturers also carry significant inventories, typicallysubdivided into three categories' raw material, wor in process, and finished goods.

$. The income statements of service business normally have separate sections foroperating revenues, operating expenses, and other income >expenses?. #n contrast,those of retailers, wholesalers, and manufacturers disclose sales revenue, followedimmediately by cost of goods sold and gross margin. 8perating expenses are listednext followed by other income >expenses?.

&. The basic difference falls in the area of inventory. Traditional manufacturersproduce finished goods, which are then placed in warehouses awaiting sale. #ncontrast, with a direct-sales, mass-customi+ation firm, the receipt of a sales ordertriggers the manufacturing process as well as the purchasing system, the latter toacuire needed raw materials. !inished-goods and raw-material inventories >along

with wor in process? of mass-customi+ers are, therefore, much lower than theinventories carried by traditional firms.

PE8)% 2-$9 >$= %#ABTC?

1. %anufacturing overhead'#ndirect laborNNNNNNNNNNNN. G1=G9=,=== x 73O?.. 6=,===8ther factory costsNNNNNNNNN.. $&&,===

TotalNNNNNNNNNNNNNN... G31$,===


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PE8)% 2-$9 >8AT#AB4?

2. ost of goods manufactured'4irect material'

Eaw-material inventory, (an. 1NNNNNN G 13,9==

/dd' Purchases of raw materialNNNNN.. 173,===Eaw material available for useNNNNNN. G1


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PE8)% 2-$< >23 %#ABTC?

Cince gross margin euals $=O of sales, cost of goods sold euals 7=O of sales, orG2$1,=== >G$$=,=== x 7=O?. Thus, the finished goods destroyed by the fire cost G&&,===,computed as follows'

!inished-goods inventory, (an. 1 >given?NNNNN.. G $7,===/dd' ost of goods manufacturedHNNNNNNNN 2$9,===ost of goods available for sale >given?NNNNNN G273,===4educt' !inished-goods inventory, /pr. 12HNNNN &&,===ost of goods sold >calculated above?NNNNNN.. G2$1,===

H!ill in these blans, given the other numbers in this table.

4irect material used'

4irect material averages 23O of prime costs >i.e., direct material L direct labor?.Thus' )et D J direct material used

D J >D L G12=,===? x 23O=.73D J G$=,===D J G&=,===

%anufacturing overhead'%anufacturing overhead euals 3=O of total production costs.Thus' )et M J manufacturing overhead

M J >direct material used L direct labor L manufacturing overhead? x 3=O

M J >G&=,=== L G12=,=== L M? x 3=O=.3=M J G9=,===M J G16=,===

The wor in process destroyed by the fire cost G1=$,===, computed as follows'

4irect materialNNNNNNNNNNNNN.NNN G &=,===4irect labor >given?NNNNNNNNNNNNNN. 12=,===%anufacturing overheadNNNNNNNNNNN... 16=,===Total manufacturing costsNNNNNNNNNN... G$2=,===/dd' Wor-in-process inventory, (an. 1 >given?N 21,===

CubtotalNNNNNNNNNNNNNNNNN.. G$&1,===4educt' Wor-in-process inventory, /pr. 12HNN. 1=$,===ost of goods manufactured >from above?NNN. G2$9,===

HG1=$,=== J G$&1,=== F G2$9,===


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PE8)% 2-&= >23 %#ABTC?

1. !ixed manufacturing overhead per unit'

G6==,=== 2&,=== units produced J G23

/verage unit manufacturing cost'4irect materialNNNNNNNNN.. G 2=4irect laborNNNNNNNNNNN $75ariable manufacturing overhead.. &9!ixed manufacturing overheadNN 23

/verage unit costNNNNNN.. G1$=

ProductionNNNNNNNNNNN. 2&,=== unitsCalesNNNNNNNNNNNNNN 2=,=== unitsnding finished-goods inventoryN &,=== units

ost of 4ecember $1 finished-goods inventory'&,=== units x G1$= J G32=,===

2. Aet income'Cales revenue >2=,=== units x G193?NNNN G$,7==,===ost of goods sold >2=,=== units x G1$=?N.. 2,6==,==="ross marginNNNNNNNNNNNNNN. G1,1==,===Celling and administrative expensesNNN.. 96=,===

#ncome before taxesNNNNNNNNNNN G 2&=,===#ncome tax expense >G2&=,=== x $=O?NNN 72,===Aet incomeNNNNNNNNNNNNNNN. G 169,===

$. >a? Ao change. 4irect labor is a variable cost, and the cost per unit will remain

constant.

>b? Ao change. 4espite the decrease in the number of units produced, this is afixed cost, which remains the same in total.

>c? Ao change. Celling and administrative costs move more closely with changesin sales than with units produced. /dditionally, this is a fixed cost.

>d? #ncrease. The average unit cost of production will change because of the per-unit fixed manufacturing overhead. / reduced production volume will bedivided into the fixed dollar amount, which increases the cost per unit.


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PE8)% 2-&2 >8AT#AB4?

b. Total manufacturing overhead'

4epreciation on factory building..................................................... G 113,===

#ndirect labor' wages........................................................................ 1&=,===Production supervisor@s salary........................................................ &3,===Cervice department costs................................................................. 1==,===#ndirect labor' fringe benefits........................................................... $=,===!ringe benefits for production supervisor...................................... G&93,=== L G


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PE8)% 2-&$ >$3 %#ABTC?

1. SAN/ERNAN+O/AS.IONSCOM,AN-SC.E+&EO/COSTO/0OO+SMAN/ACTRE+

/ORT.E-EAREN+E++ECEMBER$!1 #2'#

4irect material'Eaw-material inventory, (anuary 1............................................ G &=,===/dd' Purchases of raw material................................................ 2==,===Eaw material available for use................................................... G2&=,===4educt' Eaw-material inventory, 4ecember $1........................ 23,===Eaw material used...................................................................... G213,===

4irect labor...................................................................................... 2==,===%anufacturing overhead'

#ndirect material.......................................................................... G 1=,===

#ndirect labor............................................................................... 13,===Btilities' plant.............................................................................. &=,===4epreciation' plant and euipment........................................... 9=,===8ther............................................................................................ 9=,===Total manufacturing overhead................................................... 223,===

Total manufacturing costs............................................................. G6&=,===/dd' Wor-in-process inventory, (anuary 1................................. &=,===Cubtotal........................................................................................... G69=,===4educt' Wor-in-process inventory, 4ecember $1...................... 2=,===ost of goods manufactured......................................................... G66=,===

2. SAN/ERNAN+O/AS.IONSCOM,AN-SC.E+&EO/COSTO/0OO+SSO&+


!inished goods inventory, (anuary 1............................................................ G 2=,===/dd' ost of goods manufactured................................................................ 66=,===ost of goods available for sale.................................................................... G69=,===4educt' !inished-goods inventory, 4ecember $1........................................ 3=,===ost of goods sold.......................................................................................... G6$=,===


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PE8)% 2-&$ >8AT#AB4?

$. SAN/ERNAN+O/AS.IONSCOM,AN-INCOMESTATEMENT


Cales revenue.................................................................................................. G13 %#ABTC?

1. Eegular hours' &= G12.................................................................................... G&9=

8vertime hours' 9 G16.................................................................................... 129

Total cost of wages............................................................................................ G6=9

2. a. 4irect labor' $9 G12................................................................................... G&36

b. %anufacturing overhead >idle time?' 1 G12.............................................. 12c. %anufacturing overhead >overtime premium?' 9 >G16 F G12?................. $2

d. %anufacturing overhead >indirect labor?' < G12...................................... 1=9

Total cost of wages....................................................................................... G6=9

PE8)% 2-&3 >2= %#ABTC?

1. a, d, g, i

2. a, d, g, 0

$. b, d, g,

&. b, f

3. b, d, g,


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PE8)% 2-&3 >8AT#AB4?

6. a, d, g,

7. a, d, g, 0

9. b, c, f

2= %#ABTC?

1. $ hours >G12 L G$? J G&3

Aotice that the overtime premium on the flight is not a direct cost of the flight.

2. $ hours G12 .3 J G19

This is the overtime premium, which is part of "aines@ overall compensation.

$. The overtime premium should be included in overhead and allocated across all ofthe company@s flights.

&. The G92 is an opportunity cost of using "aines on the flight departing from Topeaon /ugust 11. The cost should be assigned to the /ugust 11 flight departing fromTopea.


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PE8)% 2-&7 >13 %#ABTC?

1. "raph of raw-material cost'

2. Production )evel in Pounds Bnit ost Total ost1 G33 per pound G33

1= G33 per pound G33=1,=== G33 per pound G33,===


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Managerial Accounting, 9/e Global Edition 2-#!

Eaw material cost

G1,63=,===

G1,1==,===

G33=,===

1=,=== 2=,=== $=,===Eaw material >pounds?

G2,2==,===


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PE8)% 2-&9 >23 %#ABTC?

1. "raph of fixed production cost'

2. Production )evel inMards

Bnit!ixed ost

Total !ixedost

1 G1==,=== per yard G1==,===

1= G1=,=== per yard G1==,===1=,=== G1= per yard G1==,===&=,=== G2.3= per yard G1==,===


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2"## Solutions Manual

!ixed production cost

G1==,===

1=,=== 2=,=== $=,===Production levels >yards?

&=,===


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PE8)% 2-&9 >8AT#AB4?

$. "raph of unit fixed production cost'

PE8)% 2-&< >1= %#ABTC?

ost #temAumber

4irect or#ndirect

Partially ontrollable by4epartment Cupervisor

1. indirect no2. indirect no$. direct yes

&. direct no3. direct yes


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Managerial Accounting, 9/e Global Edition 2-#$

&=,===

Bnit fixedproduction cost

G3.==

1=,=== 2=,=== $=,===Production levels >yards?

G2.3=G$.$$

G1=.==


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PE8)% 2-3= >1= %#ABTC?

ost #tem Aumber Product ost or Period ost1. periodH2. product

$. product&. product3. product6. periodH7. product9. periodH13 %#ABTC?

5ariable or!ixed

2=x2

!orecast xplanation

4irect material............................................... 5 G$,primarily electricity?................. 5 192,=== G1&=,=== 1.$=4epreciation on plant and euipment... ! 23=,=== same#nsurance................................................. ! 16=,=== sameCupervisory salaries............................... ! $==,=== sameProperty taxes......................................... ! 21=,=== same

Celling costs/dvertising.............................................. ! 1


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PE8)% 2-3$ >8AT#AB4?

1$. d, e,

1&. e,

13. b, dH, e,

HBnless the dishwasher has been used improperly.

PE8)% 2-3& >&= %#ABTC?

1. aterpillar is a manufacturing firm. #ts income statement highlights the firm@s cost-of-goods-sold expense, which is the cost of all of the processed food products soldduring the year. ost of goods sold is subtracted from net sales to arrive at thegross profit. The company@s other operating expenses then are subtracted from thegross profit.

Wal-%art Ctores, #nc. is a retail firm. #ts income statement also shows the firm@scost of sales, which is another name for cost of goods sold. The cost of salesincludes all of the costs of acuiring merchandise for resale. The company@s otheroperating expenses are identified separately from cost of sales.

Couthwest /irlines ompany is an airline, which is a service industry firm. The

company does not sell an inventoriable product, but rather provides airtransportation service. Therefore, the company@s income statement does not list anycost-of-goods-sold expense. /ll of its expenses are operating expenses.

2. ost-accounting data are used to measure all of the costs on all three companies@income statements. !or example, the cost-accounting system at aterpillarmeasures the cost of direct labor, direct material, and manufacturing overheadincurred in the manufacturing process. Wal-%art Ctores@ cost-accounting systemmeasures the cost of acuiring merchandise for resale. Couthwest /irlines@ cost-accounting system measures the cost of aviation fuel consumed.

$. The ticet agents@ salaries would be included in salaries, wages, and benefits.4epreciation of the airline@s computer euipment would be included in depreciation.

&. Wal-%art Ctores@ cost of newspaper advertising would be included in sellingexpenses. The cost of merchandise sold would be included in cost of sales >same ascost of goods sold?.


Inc.

2"#) Solutions Manual


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PE8)% 2-3& >8AT#AB4?

3. The salary for a aterpillar brand manager would be included in selling expenses.Production employees@ salaries are product costs, so they are part of the cost ofgoods sold. Cimilarly, raw-material costs are product costs, and they are included in

cost of goods sold.

PE8)% 2-33 >1= %#ABTC?

1. G&3= >GG1,7&= G1,$6=?

$. G$6= >G2,1== G1,7&=?

&. G&73 >GG1,7&=K&?

6. G&2= >G2,1==K3?

PE8)% 2-36 >23 %#ABTC?

1. b, c, g, h, 0, m

2. a, c, i, 0, l

$. b, d, i, 0, m

&. a, d, i, 0, l

3. a, c, i, 0, l

6. e

7. a, c, i, 0, l

9. f


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PE8)% 2-36 >8AT#AB4?

12. a, c, i, 0, l

1$. b, c, g, 0, l

1&. b, d, i, 0, l

13. b, c, i, 0, l

PE8)% 2-37 >23 %#ABTC?

1. 8utput>.73 liter bottles? alculation Bnit ost

1=,=== G137,===K1=,===

G13.7=13,=== G173,3==K13,=== G11.7=2=,=== G1


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PE8)% 2-39 >13 %#ABTC?

1. #f the company buys $=,=== units of Part %E2&, at a price of GXper unit, its total costwill be'

>$=,=== GX? L G6=,===

#f the company manufactures the parts, its total cost will be'

>$=,=== G11? L G13=,===

y euating these two expressions for total cost, we can solve for the price, X, atwhich the total cost is the same under the two alternatives'

( ) ( )

1&&2=,===$=,===

13=,===11$=,===6=,===$=,===

=

=

+=+

XX

X

Thus the firm will reali+e a net benefit by purchasing Part %E2& if the outsidesupplier charges a price less than G1&.

2. #f the firm buys Yunits of Part %E2& at a price of G12.973 per unit, the total cost willbe'

( ) G6=,===G12.973 +Y

#f the company manufactures Yunits of Part %E2&, the total cost will be'G13=,===>G11 +Y)

#f we euate these expressions, we can solve for the number of parts, Y,at which thefirm will be indifferent between maing and buying Part %E2&.

&9,===


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SO&TIONS TO CASES

/C 2-3< >$= %#ABTC?

1. MEMORAN+M

4ate' Today

To' (ames assanitti

!rom' #. %. Ctudent

Cub0ect' osts related to Printer ase 4epartment

The G2


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/C 2-3< >8AT#AB4?

2. The controller has an ethical obligation to state accurately the pro0ected cost savingsfrom closing the Printer ase 4epartment. The production manager and otherdecision maers have a right to now the financial implications of closing the

department. Ceveral of the ethical standards for management accountants >listed inhapter 1? apply, including the following'

Competence:

%aintain an appropriate level of professional expertise by continually developing

nowledge and sills.

Perform professional duties in accordance with relevant laws, regulations, and

technical standards.

Provide decision support information and recommendations that are accurate,clear, concise, and timely.

Eecogni+e and communicate professional limitations or other constraints that

would preclude responsible 0udgment or successful performance of an activity.

Credibility:

ommunicate information fairly and ob0ectively.

4isclose all relevant information that could reasonably be expected to influence

an intended userIs understanding of the reports, analyses, or recommendations.

4isclose delays or deficiencies in information, timeliness, processing, or internal

controls in conformance with organi+ation policy andKor applicable law.


Inc.

Managerial Accounting, 9/e Global Edition 2-$!


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/C 2-6= >3= %#ABTC?

1. a. !astQ ompany would be indifferent to acuiring either the small-volume copier,1=2&C, or the medium-volume copier, 1=2&%, at the point where the costs for1=2&C and 1=2&% are eual. This point may be calculated using the following

formula, whereXeuals the number of copies'

>5ariable costSXS? L fixed costS J >variable costMXM? L fixed costM

1=2&C 1=2&%

G.1&XL G9,=== J G.=


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managerial accounting hilton 9th edition

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