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DOWNLOAD COMPLETE PDF FILE AT blogger.comes/downloads/managerial-accountingth-edition-garrison-solutions- blogger.com Chapter 2: Applying Excel (continued) [Note: To display formulas in Excel , select File > Options > Advanced > Display options for this worksheet > Show formulas in cells instead of their calculated amounts Managerial Accounting 16th Edition Garri PDF The company uses inventories. Without that lubricant, the economy would operate much less efficiently—less would be available to Chapter 1: Managerial Accounting and the Business and Environment Chapter 2: Cost Terms, Concepts, and Classifications Chapter 3: Systems Design: Job-Order Costing Chapter 4: Download Free Managerial Accounting 15th Edition Garrison Pdf File Free Study Guide to accompany Intermediate Accounting, Volume 1 Dec 19 This is the Study Guide to managerial accounting. This book is specifically designed to appeal to both accounting and non-accounting majors, exposing students to the core concepts of accounting in familiar ... read more
Archive-It Subscription Explore the Collections Learn More Build Collections. Sign up for free Log in. Search metadata Search text contents Search TV news captions Search radio transcripts Search archived web sites Advanced Search. Managerial accounting Item Preview. remove-circle Share or Embed This Item. EMBED for wordpress. com hosted blogs and archive. Want more? Advanced embedding details, examples, and help! xxi, pages : 29 cm As the long-time best-seller, Garrison has helped guide close to 2 million students through the challenging waters of managerial accounting since it was first published. It identifies the three functions managers must perform within their organizations--plan operations, control activities, and make decisions--and explains what accounting information is necessary for these functions, how to collect it, and how to interpret it.
Every effort is made to help students relate the concepts in this book to the decisions made by working managers. With insightful chapter openers, the popular Managerial Accounting in Action segments within the chapters, and stimulating end-of-chapter exercises, a student reading Garrison should never have to ask "Why am I learning this? There's more than one type of business, and so Garrison covers a variety of business models, including not-for-profit, retail, service, and wholesale organizations as well as manufacturing.
In the eleventh edition, service company examples are highlighted with icons in the margins of the text. Generations of students have praised Garrison for the friendliness and readability of its writing, but that's just the beginning. Technical discussions have been simplified, material has been reordered, and the entire book carefully retuned to make teaching--and learning--from Garrison as easy as it can be. In addition, the supplements package is written by Garrison, Noreen, and Brewer, ensuring that students and professors will work with clear, well-written supplements that employ consistent terminology Includes bibliographical references and index Chapter 1: Managerial Accounting and the Business and Environment Chapter 2: Cost Terms, Concepts, and Classifications Chapter 3: Systems Design: Job-Order Costing Chapter 4: Systems Design: Process Costing Chapter 5: Cost Behavior: Analysis and Use Chapter 6: Cost-Volume-Profit Relationships Chapter 7: Variable Costing: A Tool for Management Chapter 8: Activity-Based Costing: A Tool to Aid Decision Making Chapter 9: Profit Planning Chapter Standard Costs and the Balanced Scorecard Chapter Flexible Budgets and Overhead Analysis Chapter Segment Reporting and Decentralization Chapter Relevant Costs for Decision Making Chapter Capital Budgeting Decisions Chapter "How Well Am I Doing?
Ask students whether they would be on the system than the weakest link can handle—if you do, the chain will break. In the case better off spending their available of the NHS, waiting lists become unacceptably long. Third, concentrate improvement ef- time studying for a course in which forts on strengthening the weakest link. Find ways to increase the number of surgeries that they have an A average or one in can be performed in a day. Fourth, if the improvement efforts are successful, eventually the which they have a C average. magazine Health Management. At that point, the new weakest link i. This simple sequential process provides a powerful strat- egy for continuous improvement.
The TOC approach is a perfect complement to other im- provement tools such as TQM and process reengineering—it focuses improvement efforts where they are likely to be most effective. IN BUSINESS WATCH WHERE YOU CUT COSTS At one hospital, the emergency room became so backlogged that its doors were closed to the pub- lic and patients were turned away for over 36 hours in the course of a single month. It turned out, after investigation, that the constraint was not the emergency room itself; it was the housekeeping staff. To cut costs, managers at the hospital had laid off housekeeping workers. This created a bot- tleneck in the emergency room because rooms were not being cleaned as quickly as the emergency room staff could process new patients. Thus, laying off some of the lowest paid workers at the hos- pital had the effect of forcing the hospital to idle some of its most highly paid staff and most ex- pensive equipment!
Manage- ment of the plant is acutely aware of the necessity to actively manage its constraints. For example, when materials are a constraint, management may go to a secondary vendor and purchase materi- als at a higher cost than normal. When a machine is the constraint, a weekend shift is often added on the machine. If a particular machine is chronically the constraint and management has exhausted the possibilities of using it more effectively, then additional capacity is purchased. For example, when the constraint was the plastic extruding machines, a new extruding machine was ordered. However, even before the machine arrived, management had determined that the constraint would shift to the blenders once the new extruding capacity was added. Therefore, a new blender was al- ready being planned. Source: Eric Noreen, Debra Smith, and James Mackey, The Theory of Constraints and Its Implications for Man- agement Accounting Montvale, NJ: The IMA Foundation for Applied Research, Inc.
International Competition Over the last several decades, competition has become worldwide in many industries. This has been caused by reductions in tariffs, quotas, and other barriers to free trade; im- provements in global transportation systems; and increasing sophistication in interna- tional markets. These factors work together to reduce the costs of conducting international trade and make it possible for foreign companies to compete on a more equal footing with local companies. Reductions in trade barriers have made it easier for agile and aggressive companies to expand outside of their home markets. As a result, very few companies can afford to be complacent. A company may be very successful today in its local market relative to its lo- cal competitors, but tomorrow the competition may come from halfway around the globe. As a matter of survival, even companies that are presently doing very well in their home markets must become world-class competitors.
On the bright side, the freer international movement of goods and services presents tremendous export opportunities for those com- panies that can transform themselves into world-class competitors. And, from the stand- point of consumers, heightened competition promises an even greater variety of goods, at higher quality and lower prices. It would be very difficult for a company to become world-class if it plans, directs, and controls its operations and makes decisions using a second-class management accounting system. An excellent management accounting system will not by itself guarantee success, but a poor management accounting system can stymie the best efforts of people in an organization to make the company truly competitive.
It is noteworthy that ele- ments of well-designed management accounting systems have originated in many countries. More and more, managerial accounting has become a worldwide discipline. GLOBAL FORCES IN BUSINESS Traditionally, management accounting practices have differed significantly from one country to an- other. For example, Spain, Italy, and Greece have relied on less formal management accounting systems than other European countries. According to Professor Norman B. mitigated the development of management accounting and control systems. Spain also followed this pattern and relied more on personal relationships and oral inquisitions than on hard data for control.
In the case of France, these were codified in law. In England, management accounting practice was influenced by economists, who emphasized the use of accounting data in decision making. The Nordic countries tended to import management accounting ideas from both Germany and England. A number of factors have been acting in recent years to make management accounting prac- tices more similar within Europe and around the world. These forces include: intensified global com- petition, which makes it more difficult to continue sloppy practices; standardized information system software sold throughout the world by vendors such as SAP, PeopleSoft, Oracle, and Baan; the in- creasing significance and authority of multinational corporations; the global consultancy industry; the diffusion of information throughout academia; and the global use of market-leading textbooks.
E-Commerce Suggested Reading Widespread use of the Internet is a fairly new phenomenon, and the impact it will even- While the internet is reshaping how tually have on business is far from settled. For a few brief months, it looked like dot. com businesses function with external parties, intranets are also affecting startups would take over the business world—their stock market valuations reached as- how companies operate internally. tonishing heights. But, of course, the bubble burst and few of the startups are now in busi- For example, D. Keith Denton dis- ness. With the benefit of hindsight, it is now clear that the managers of the dot. And , pp. the investors who plowed billions into dot. com startups only to see their money vanish would have been wise to pay attention to the tools covered in the chapters on the state- ment of cash flows Chapter 16 and financial statement analysis Chapter At the time of this writing, it is still not clear if a successful business model will emerge for Internet-based companies.
It is generally believed that Amazon. com and eBay may have the best chances of building sustainable e-commerce businesses, but even Ama- zon. com has its detractors who believe it will never break even on a cash flow basis. The Internet has important advan- Review, March , pp. tages over more conventional marketplaces for some kinds of transactions such as mort- gage banking. The financial institution does not have to tie up staff filling out forms—that can be done directly by the consumer over the Internet. However, it is unlikely that a successful blockbuster business will ever be built around the concept of selling low-value, low-margin, and bulky items like groceries over the Internet. Professional Ethics Professional Ethics LEARNING OBJECTIVE 4 A series of major financial scandals involving Enron, Tyco International, HealthSouth, Understand the importance of Adelphia Communications, WorldCom, Global Crossing, Arthur Andersen, Rite Aid, and upholding ethical standards.
other companies have raised deep concerns about ethics in business. The managers and companies involved in these scandals have suffered mightily—from huge fines to jail terms and financial collapse. And the recognition that ethical behavior is absolutely es- Reinforcing Problems sential for the functioning of our economy has led to numerous regulatory changes and Learning Objective 4 calls for new legislation. But why is ethical behavior so important? This is not a matter Exercise 1—3 Basic 15 min. Problem 1—5 Basic 20 min. Without that lubricant, the economy would operate much less efficiently—less would be Problem 1—7 Medium 20 min. available to consumers, quality would be lower, and prices would be higher. As James Problem 1—8 Medium 30 min. Surowiecki writes: Suggested Reading [F]lourishing economies require a healthy level of trust in the reliability and fairness For a brief discussion of how large of everyday transactions.
If you assumed every potential deal was a rip-off or that the frauds and bankruptcies, such as products you were buying were probably going to be lemons, then very little business WorldCom, affect other stakehold- ers, see Joseph Bower and Stuart would get done. For an Review, December , pp. Suppose that unethical farmers, distributors, and grocers knowingly tried to sell wormy apples as good apples and that grocers refused to take back wormy apples. What would you do? Go to another grocer? But what if all grocers acted in this way? What would you do then? You would probably either stop buying apples or you would spend a lot of time inspecting apples before buying them. So would everyone else. Now notice what has happened. Because farmers, distributors, and grocers cannot be trusted, sales of apples would plummet and those who did buy apples would waste a lot of time meticulously inspecting them. Everyone loses.
Farmers, distributors, and gro- ceries make less money, consumers enjoy fewer apples, and consumers waste time look- ing for worms. One commentator argues that integrity is particularly critical in companies whose as- sets are largely intangible: [U]ntil quite recently, most corporate assets were tangible. In the new, digital, trust-based economy, the stakes are extraordinarily high. Experience shows that this asset is built slowly and painfully but can be lost in an eye blink, and in losing it, you lose everything. But the firm also had legitimate businesses and actual assets. There is no room for fudging on this because the consequences of not having the electricity when consumers switch on their lights are dire. This means that the firms with whom Enron was trading electricity. had to trust Enron. And trust Enron they did, to the tune of billions of dollars of trades every year. As everyone recognizes, the announcement caused investors to lower their valuations of the firm.
Less understood, however, was the more important impact of the announcement; by revealing some of its reported earnings to be a house of cards, Enron sabotaged its reputation. The effect was to undermine even its legitimate and previously prof- itable operations that relied on its trustworthiness. This is why Enron melted down so fast. When that reputation was wounded, energy traders took their business elsewhere. Energy traders lost their faith in Enron, but what if no other company could be trusted to deliver on Suggested Reading its commitments to provide electricity as contracted? In that case, energy traders would have For an overview of the parties that nowhere to turn. As a direct result, energy producers with surplus generating capacity would be un- must all function properly for corpo- rate governance to be credible, see able to sell their surplus power.
So a general , pp. Source: Jonathan M. Even though the standards were specifically developed for management accountants, they have much broader application. All rights reserved. The standards have two ing Number 1C, Standards of Ethical parts. The first part provides general guidelines for ethical behavior. In a nutshell, a man- Conduct for Practitioners of Manage- ment Accounting and Financial Man- agement accountant has ethical responsibilities in four broad areas: First, to maintain a agement issued by the Institute of high level of professional competence; second, to treat sensitive matters with confiden- Management Accountants, Mont- tiality; third, to maintain personal integrity; and fourth, to be objective in all disclosures. vale, NJ www. org is the au- The second part of the standards specifies what should be done if an individual finds ev- thoritative source concerning ethics idence of ethical misconduct. We recommend that you stop at this point and read the stan- and the management accounting dards in Exhibit 1—5.
EXHIBIT 1—5 Practitioners of management accounting and financial management have an obligation Standards of Ethical Conduct for to the public, their profession, the organization they serve, and themselves, to maintain Practitioners of Management the highest standards of ethical conduct. In recognition of this obligation, the Institute of Accounting and Financial Management Accountants has promulgated the following standards of ethical conduct Management for practitioners of management accounting and financial management. Adherence to these standards, both domestically and internationally, is integral to achieving the Objectives of Management Accounting.
Practitioners of management accounting and financial management shall not commit acts contrary to these standards nor shall they condone the commission of such acts by others within their organizations. Resolution of Ethical Conflict. In applying the standards of ethical conduct, practi- tioners of management accounting and financial management may encounter prob- lems in identifying unethical behavior or in resolving an ethical conflict. When faced with significant ethical issues, practitioners of management accounting and financial management should follow the established policies of the organization bearing on the resolution of such conflict. If a satisfactory resolution cannot be achieved when the problem is initially presented, submit the issues to the next higher managerial level.
Except where legally prescribed, communication of such problems to authorities or individuals not employed or engaged by the organization is not considered appropriate. After resignation, depending on the nature of the ethical conflict, it may also be appropriate to notify other parties. The ethical standards provide sound, practical advice for management accountants Suggested Reading and managers. Most of the rules in the ethical standards are motivated by a very practical See Otto B. Consider the following specific examples of the consequences Management Accounting Quarterly, of not abiding by the standards: Fall , pp. Then top showing links between the impor- managers would be reluctant to distribute such information within the company and, tance placed by individuals on elements of the IMA code of ethics as a result, decisions would be based on incomplete information and operations and their own ethical judgments in would deteriorate.
various situations. Then contracts would tend to go to suppliers who pay the highest bribes rather than to the most competent suppliers. Would you like to fly in aircraft whose wings were made by the subcontractor who paid the highest bribe? Would you fly as often? What would happen to the airline in- dustry if its safety record deteriorated due to shoddy workmanship on contracted parts and assemblies? Felo and nancial statements, they would have little basis for making informed decisions. Steven A. have less money for productive investments—leading to slower economic growth, fewer goods and services, and higher prices.
As these examples suggest, if ethical standards were not generally adhered to, everyone would suffer—businesses as well as consumers. Essentially, abandoning ethical standards would lead to a lower standard of living with lower-quality goods and services, less to choose from, and higher prices. In short, following ethical rules such as those in the Stan- dards of Ethical Conduct for Practitioners of Management Accounting and Financial Management is absolutely essential for the smooth functioning of an advanced market economy. Suggested Reading The Standards of Ethical Conduct for Practitioners of Management Accounting and See Joan L.
Research 9, , pp. A man- dealing with fairness and ethics. ager who retaliates against an employee who reports misconduct can be imprisoned for up to 10 years. IN BUSINESS LOSING THEIR BEARINGS Some would argue that changes in the roles of the management accountant and the Chief Financial Officer have gone too far in recent years. They were the truth-tellers. Instead, CFOs became corporate spokesmen, guiding stock analysts in their quarterly earnings estimates— and then making sure that those earnings estimates were beaten using whatever was necessary, in- cluding accounting tricks and in some cases outright fraud.
CFOs at companies like Enron who allegedly became entangled in such corrupt practices found themselves under arrest and in hand- cuffs. What is needed? Greater personal integrity and less emphasis on meeting quarterly earnings estimates. Instead, they give broad Suggested Reading guidelines. For an interesting discussion of Unfortunately, the single-minded emphasis placed on short-term profits in some com- the negative effects of overempha- panies may make it seem like the only way to get ahead is to act unethically. McCuddy, Karl E. Management Accounting, April , pp. For a while, Dunlap was able to show consis- tent improvements in quarterly earnings at Sunbeam, but only later did his methods for achieving this record come to light.
John A. Byrne describes what happened: By the fourth quarter, as it became more difficult to meet the numbers, a new and rather men- acing management technique was invented. Your life de- pends on hitting that number. Commissions were withheld from independent sales reps. Bills went un- paid. As Sunbeam moved toward the holiday season, its struggle to make its numbers be- came more desperate. The retailers did not have to pay for the grills or accept delivery of them for six months. And Russ, you cover it with your ditty bag.
She finally resigned after unsuccessfully attempting to send a warning memo to the board of directors. A few months later, the accounting ploys Dunlap had been using to bolster earnings came unraveled, leading to a dramatic boardroom ouster. The com- pany and its employees still suffer from the aftermath. Source: John A. WHERE WOULD YOU LIKE TO WORK? IN BUSINESS Nearly all executives claim that their companies maintain high ethical standards; however, not all ex- ecutives walk the talk. Employees usually know when top executives are saying one thing and doing another and they also know that these attitudes spill over into other areas. Working in companies where top managers pay little attention to their own ethical rules can be extremely unpleasant.
Sev- eral thousand employees in many different organizations were asked if they would recommend their company to prospective employees. Source: Jeffrey L. Where cross-border activities are involved, the IFAC ethical requirements must be followed if they are stricter than the ethical requirements of the country in which the work is being performed. The Act requires that companies devise and maintain a system of internal controls sufficient to ensure that all transactions are properly executed and recorded. The Act specifically prohibits giving bribes, even if giving bribes is a common practice in the country in which the company is doing business.
Re- searchers have run many variations of the following experiment. Two randomly selected players who do not know each other are placed in different rooms. The individuals cannot see or hear each other and are never introduced to each other. However, under the rules of the experiment, the second player is allowed to refuse the offer and in that case, neither player gets anything. The game is played only once for each pair of players. What would a greedy person do? How- ever, in repeated experiments of this sort, people cast as player one were usually far more generous than this and people cast as player two often rejected small offers, even though that left them with nothing.
Even more interestingly, responses differed across cultures. The Quichua Indians subsist in a slash-and-burn agricultural society with little trading, whereas farmers from Hamilton, Missouri, live in a fully developed capitalist market econ- omy. This experiment has been repeated in many communities around the world and the consis- tent result is that greed i. It is not clear what is the cause and what is the effect. Do markets make people act less greed- ily or is suppression of greed a prerequisite to a fully developed market economy? At any rate, ruth- less greed seems to be much more a hallmark of people who live in undeveloped, precapitalist societies than of those who live in fully developed market economies. In addition to the prestige that accompanies a professional designation, CMAs are often given greater responsibilities and higher compensation than those who do not have such a designation.
org or by calling To become a Certified Management Accountant, the following four steps must be completed: 1. File an Application for Admission and register for the CMA examination. Pass all four parts of the CMA examination within a three-year period. Comply with the Standards of Ethical Conduct for Practitioners of Management Ac- counting and Financial Management. IN BUSINESS The Institute of Management Accountants has developed the following table that gives you an esti- mate of how much you would earn as a management accountant. The table applies specifically to men. Source: Karl E. Used with permission from the Institute of Management Accountants IMA , Montvale, N. Summary Summary Managerial accounting assists managers in carrying out their responsibilities, which include planning, di- recting and motivating, and controlling. Since managerial accounting is geared to the needs of managers rather than to the needs of outsiders, it differs substantially from financial accounting.
Managerial accounting is oriented more toward the fu- ture, places less emphasis on precision, emphasizes segments of an organization rather than the organiza- tion as a whole , is not governed by generally accepted accounting principles, and is not mandatory. The organization chart depicts who works for whom in the organization and which units perform staff functions rather than line func- tions. Accountants perform a staff function—they support and provide assistance to others inside the organization. The business environment in recent years has been characterized by increasing competition and a relentless drive for continuous improvement.
Several approaches have been developed to as- sist organizations in meeting these challenges—including Just-In-Time JIT , Total Quality Man- agement TQM , Process Reengineering, and the Theory of Constraints TOC. JIT emphasizes the importance of reducing inventories to the barest minimum possible. This reduces working capital requirements, frees up space, reduces throughput time, reduces defects, and eliminates waste. TQM involves focusing on the customer, and it employs systematic problem solving using teams made up of front-line workers. By emphasizing teamwork, a focus on the customer, and facts, TQM can avoid the organizational infighting that might otherwise block improvement. Traditional Income Statement Sales Contribution format income statement The Alpine House, Inc. Contribution Format Income Statement Sales The differential cost is computed as follows: Cost of a new model a 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. Fixed Product 6. Fixed Period 7. Salary of a supervisor overseeing production of printers at Hewlett-Packard Fixed Product 8. Commissions paid to automobile salespersons Variable Period 9. Depreciation of factory lunchroom facilities at a General Electric plant Fixed Product Steering wheels installed in BMWs Variable Product © The McGraw-Hill Companies, Inc. The direct costs of the Apparel Department are as follows: Apparel Department cost of sales—Evendale Store The direct costs of the Evendale Store are as follows: Apparel Department cost of sales—Evendale Store 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 Contribution format income statement Todrick Company Contribution Format Income Statement Sales Traditional income statement Todrick Company Traditional Income Statement Sales 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. The cost of leasing the Meals-On-Wheels van The cost of incidental supplies such as salt, pepper, napkins, and so on The cost of gasoline consumed by the Meals-On- Wheels van The rent on the facility that houses Madison Seniors Care Center, including the Meals-On- Wheels program The salary of the part-time manager of the Meals-On-Wheels program Depreciation on the kitchen equipment used in the Meals-On-Wheels program The hourly wages of the caregiver who drives the van and delivers the meals The costs of complying with health safety regulations in the kitchen The costs of mailing letters soliciting donations to the Meals-On-Wheels program 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. The total manufacturing overhead cost is computed as follows: Direct labor cost a The total direct materials cost is computed as follows: Direct labor cost a The total amount of manufacturing cost is computed as follows: Direct materials cost The total variable selling and administrative cost is computed as follows: Total sales a The total variable cost is computed as follows: Direct materials cost The total fixed cost is computed as follows: Total selling and administrative expenses a The total contribution margin is calculated as follows: Sales a 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 Boxes used for packaging detergent produced by the company Depreciation, executive autos Wages of workers assembling computers Insurance, finished goods warehouses Lubricants for production equipment Microchips used in producing calculators Shipping costs on merchandise sold Magazine subscriptions, factory lunchroom Thread in a garment factory Executive life insurance F X © The McGraw-Hill Companies, Inc. Ink used in textbook production Fringe benefits, materials handling workers.. Yarn used in sweater production Wages of receptionist, executive offices The total product cost is computed as follows: Direct materials The total period cost is computed as follows: Total selling expense The total direct manufacturing cost is computed as follows: Direct materials The total indirect manufacturing cost is computed as follows: Variable manufacturing overhead The total manufacturing cost is computed as follows: Direct materials The total nonmanufacturing cost is computed as follows: Total selling expense The total conversion cost is computed as follows: Direct labor The total variable manufacturing cost is computed as follows: Direct materials The total amount of fixed cost for the company as a whole is computed as follows: Fixed manufacturing overhead The variable cost per unit produced and sold is computed as follows: Direct materials The incremental manufacturing cost is computed as follows: Direct materials Selling or Cost Behavior Administrative Product Cost Cost Item Variable Fixed Cost Direct Indirect Direct labor The average product cost for one patio set would be: Direct The average product cost per set would increase if the production drops.
This is because the fixed costs would be spread over fewer units, causing the average cost per unit to rise. He might expect a price even higher than this to cover a portion of the administrative costs as well. The brother-in-law probably is thinking of cost as including only direct materials, or, at most, direct materials and direct labor. The term is opportunity cost. The full, regular price of a set might be appropriate here, because the company is operating at full capacity, and this is the amount that must be given up benefit forgone to sell a set to the brother-in-law. A cost that is classified as a period cost will be recognized on the income statement as an expense in the current period. A cost that is classified as a product cost will be recognized on the income statement as an expense i.
If some units are unsold at the end of the period, the costs of those unsold units are treated as assets. Therefore, by reclassifying period costs as product costs, the company is able to carry some costs forward in inventories that would have been treated as current expenses. The decision to postpone expenditures is questionable. It is one thing to postpone expenditures due to a cash bind; it is quite another to postpone expenditures in order to hit a profit target. Postponing these expenditures may have the effect of ultimately increasing future costs and reducing future profits. Postponing maintenance on equipment is particularly questionable. Such a reclassification would be a violation of the principle of consistency in financial reporting and is a clear attempt to mislead readers of the financial reports. Hopefully, the auditors would discover any such attempt to manipulate annual earnings and would refuse to issue an unqualified opinion due to the lack of consistency.
However, recent accounting scandals may lead to some skepticism about how forceful auditors have been in enforcing tight accounting standards. Quality of conformance 2. Quality costs 3.
edu no longer supports Internet Explorer. To browse Academia. edu and the wider internet faster and more securely, please take a few seconds to upgrade your browser. Solution Manual for Managerial Accounting 16th Edition By Garrison. Log in with Facebook Log in with Google. Remember me on this computer. Enter the email address you signed up with and we'll email you a reset link. Need an account? Click here to sign up. Download Free DOCX. Download Free PDF. EGH7P6 ZP4JQN. Abstract Solution Manual for Managerial Accounting 16th Edition By Garrison. Continue Reading Download Free PDF. Variable cost: The variable cost per unit is materials, direct labor, and manufacturing constant, but total variable cost changes in overhead. direct proportion to changes in volume. Fixed cost: The total fixed cost is constant within the relevant range. The average fixed a. Direct materials are an integral part of a cost per unit varies inversely with changes finished product and their costs can be in volume.
conveniently traced to it. Mixed cost: A mixed cost contains both b. Indirect materials are generally small variable and fixed cost elements. 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 a. Unit fixed costs decrease as the activity level great cost or inconvenience. Direct labor consists of labor costs that b. Unit variable costs remain constant as the can be easily traced to particular products. activity level increases. Total fixed costs remain constant as the d. Indirect labor consists of the labor costs activity level increases.
of janitors, supervisors, materials handlers, and d. Total variable costs increase as the activity other factory workers that cannot be level increases. conveniently traced to particular products. These labor costs are incurred to support production, but the workers involved do not a. Cost behavior: Cost behavior refers to the directly work on the product. way in which costs change in response to e. Manufacturing overhead includes all changes in a measure of activity such as manufacturing costs except direct materials and sales volume, production volume, or orders direct labor. Consequently, manufacturing processed. overhead includes indirect materials and indirect b. Relevant range: The relevant range is the labor as well as other manufacturing costs. range of activity within which assumptions about variable and fixed cost behavior are A product cost is any cost involved in valid.
purchasing or manufacturing goods. In the case of manufactured goods, these costs consist of An activity base is a measure of direct materials, direct labor, and manufacturing whatever causes the incurrence of a variable overhead. A period cost is a cost that is taken cost. Examples of activity bases include units directly to the income statement as an expense produced, units sold, letters typed, beds in a in the period in which it is incurred. hospital, meals served in a cafe, service calls made, etc. All rights reserved. Within a functional area, fixed and variable costs are intermingled. The A discretionary fixed cost has a fairly contribution approach income statement short planning horizon—usually a year. Such organizes costs by behavior, first deducting costs arise from annual decisions by variable expenses to obtain contribution margin, management to spend on certain fixed cost and then deducting fixed expenses to obtain net items, such as advertising, research, and operating income.
management development. A committed fixed cost has a long planning horizon—generally The contribution margin is total sales many years. investment in facilities, equipment, and basic organization. between alternatives in a decision. An opportunity cost is the potential benefit that is Yes. As the anticipated level of activity given up when one alternative is selected over changes, the level of fixed costs needed to another. A sunk cost is a cost that has already support operations may also change. Most fixed been incurred and cannot be altered by any costs are adjusted upward and downward in decision taken now or in the future. large steps, rather than being absolutely fixed at one level for all ranges of activity. 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.
It did not change because the variable selling expense is deducted after the gross margin, not before it on the traditional format income statement. The new worksheet appears below: © The McGraw-Hill Companies, Inc. 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. Direct materials Sales commissions per unit a expense a × b Variable cost per unit sold a Total fixed manufacturing cost see requirement 1 a Total fixed manufacturing cost see requirement Variable overhead per unit a Selling price per unit Direct materials per unit 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. Lab tests by outside A particular patient contractor X 8. Lab tests by outside A particular department contractor X © The McGraw-Hill Companies, Inc. The cost of a hard drive installed in a computer: direct materials. The cost of advertising in the Puget Sound Computer User newspaper: selling. The wages of employees who assemble computers from components: direct labor.
Depreciation on equipment used to test assembled computers before release to customers: manufacturing overhead. 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. Rent on equipment used in the factory Lubricants used for machine maintenance Salaries of personnel who work in the finished goods warehouse Soap and paper towels used by factory workers at the end of a shift Heat, water, and power consumed in the factory Materials used for boxing products for shipment overseas units are not normally boxed Advertising costs Depreciation on chairs and tables in the factory lunchroom The wages of the receptionist in the administrative offices Cost of leasing the corporate jet used by the company's executives The cost of renting rooms at a Florida resort for the annual sales conference
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