1、 The McGraw-Hill Companies, Inc., 2006. All rights reserved. Solutions Manual, Chapter 2 15 Chapter 2 Cost Terms, Concepts, and Classifications Solutions to Questions 2-1 The three major elements of product costs in a manufacturing company are direct materials, direct labor, and manufacturing over-h
2、ead. 2-2 a. Direct materials are an integral part of a finished product and their costs can be conven-iently 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 produ
3、ct only at great cost or inconvenience. Indirect materials are ordinarily classified as manufacturing over-head. c. Direct labor includes those labor costs that can be easily traced to particular products. Direct labor is also called “touch labor.” d. Indirect labor includes the labor costs of janit
4、ors, supervisors, materials handlers, and other factory workers that cannot be conven-iently traced to particular products. These labor costs are incurred to support production, but the workers involved do not directly work on the product. e. Manufacturing overhead includes all manufacturing costs e
5、xcept direct materials and direct labor. 2-3 A product cost is any cost involved in purchasing or manufacturing goods. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. A period cost is a cost that is taken directly to the income st
6、atement as an expense in the period in which it is incurred. 2-4 The income statement of a manufactur-ing company differs from the income statement of a merchandising company in the cost of goods sold section. The merchandising company sells finished goods that it has purchased from a supplier. Thes
7、e goods are listed as “Purchases” in the cost of goods sold section. Since the manufacturing company produces its goods rather than buying them from a supplier, it lists “Cost of Goods Manufactured” in place of “Pur-chases.” Also, the manufacturing company iden-tifies its inventory in this section a
8、s “Finished Goods Inventory,” rather than as “Merchandise Inventory.” 2-5 The schedule of cost of goods manufac-tured lists the manufacturing costs that have been incurred during the period. These costs are organized under the three major categories of direct materials, direct labor, and manufacturi
9、ng overhead. The total costs incurred are adjusted for any change in the Work in Process inventory to determine the cost of goods manufactured (i.e. finished) during the period. The schedule of cost of goods manufac-tured ties into the income statement through the Cost of Goods Sold section. The cos
10、t of goods manufactured is added to the beginning Finished Goods inventory to determine the goods available for sale. In effect, the cost of goods manufactured takes the place of the “Purchases” account in a merchandising firm. 2-6 A manufacturing company has three inventory accounts: Raw Materials,
11、 Work in Process, and Finished Goods. A merchandising company generally identifies its inventory ac-count simply as Merchandise Inventory. 2-7 Since product costs accompany units of product into inventory, they are sometimes called inventoriable costs. The flow is from di-rect materials, direct labo
12、r, and manufacturing overhead to Work in Process. As goods are com- The McGraw-Hill Companies, Inc., 2006. All rights reserved. 16 Managerial Accounting, 11th Edition pleted, their cost is removed from Work in Proc-ess and transferred to Finished Goods. As goods are sold, their cost is removed from
13、Finished Goods and transferred to Cost of Goods Sold. Cost of Goods Sold is an expense on the income statement. 2-8 Yes, costs such as salaries and depre-ciation can end up as assets on the balance sheet if these are manufacturing costs. Manu-facturing costs are inventoried until the associ-ated fin
14、ished goods are sold. Thus, if some units are still in inventory, such costs may be part of either Work in Process inventory or Finished Goods inventory at the end of a period. 2-9 Cost behavior refers to how a cost will react or respond to changes in the level of activ-ity. 2-10 No. A variable cost
15、 is a cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit of product. A fixed cost is fixed in total, but will vary inversely on an average per-unit basis with changes in the level of activity. 2-11 When fixed costs are involved,
16、 the av-erage cost of a unit of product will depend on the number of units being manufactured. As production increases, the average cost per unit will fall as the fixed cost is spread over more units. Conversely, as production declines, the average cost per unit will rise as the fixed cost is spread
17、 over fewer units. 2-12 Manufacturing overhead is an indirect cost since these costs cannot be easily and con-veniently traced to particular units of products. 2-13 A differential cost is a cost that differs between alternatives in a decision. An opportu-nity cost is the potential benefit that is gi
18、ven up when one alternative is selected over another. A sunk cost is a cost that has already been in-curred and cannot be altered by any decision taken now or in the future. 2-14 No; differential costs can be either vari-able or fixed. For example, the alternatives might consist of purchasing one ma
19、chine rather than another to make a product. The difference in the fixed costs of purchasing the two ma-chines would be a differential cost. 2-15 Direct labor cost (34 hours $15 per hour) . $510Manufacturing overhead cost (6 hours $15 per hour) . 90Total wages earned .$6002-16 Direct labor cost (45
20、hours $14 per hour) . $630Manufacturing overhead cost (5 hours $7 per hour) . 35Total wages earned . $6652-17 Costs associated with the quality of con-formance can be broken down into prevention costs, appraisal costs, internal failure costs, and external failure costs. Prevention costs are in-curre
21、d in an effort to keep defects from occur-ring. Appraisal costs are incurred to detect de-fects before they can create further problems. Internal and external failure costs are incurred as a result of producing defective units. 2-18 Total quality costs are usually minimized by increasing prevention
22、and appraisal costs in order to reduce internal and external failure costs. Total quality costs usually decrease as prevention and appraisal costs increase. 2-19 Shifting the focus to prevention and away from appraisal is usually the most effective way to reduce total quality costs. It is usually mo
23、re effective to prevent defects than to at-tempt to fix them after they have occurred. 2-20 First, a quality cost report helps manag-ers see the financial consequences of defects. Second, the report may help managers identify the most important areas for improvement. Third, the report helps managers
24、 see whether quality costs are appropriately distributed among prevention, appraisal, internal failure, and external failure costs. 2-21 Most accounting systems do not track and accumulate the costs of quality. It is par-ticularly difficult to get a feel for the magnitude of quality costs since they
25、 are incurred in many departments throughout the organization. The McGraw-Hill Companies, Inc., 2006. All rights reserved. Solutions Manual, Chapter 2 17 Exercise 2-1 (15 minutes) 1. The cost of a hard-drive installed in a computer: direct materials cost. 2. The cost of advertising in the Puget Soun
26、d Computer User newspaper: marketing and selling cost. 3. The wages of employees who assemble computers from components: direct labor cost. 4. Sales commissions paid to the companys salespeople: marketing and selling cost. 5. The wages of the assembly shops supervisor: manufacturing overhead cost. 6
27、. The wages of the companys accountant: administrative cost. 7. Depreciation on equipment used to test assembled computers before re-lease to customers: manufacturing overhead cost. 8. Rent on the facility in the industrial park: a combination of manufactur-ing overhead, administrative, and marketin
28、g and selling cost. The rent would most likely be prorated on the basis of the amount of space oc-cupied by manufacturing, administrative, and marketing operations. The McGraw-Hill Companies, Inc., 2006. All rights reserved. 18 Managerial Accounting, 11th Edition Exercise 2-2 (15 minutes) Product Co
29、st Period Cost 1. Depreciation on salespersons cars X 2. Rent on equipment used in the factory X 3. Lubricants used for maintenance of machines X 4. Salaries of finished goods warehouse personnel . X 5. Soap and paper towels used by factory workers at the end of a shift. X 6. Factory supervisors sal
30、aries 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 on factory em-ployees. X 11. Depreciation on chairs and tables in the factory lunchroom X
31、 12. The wages of the receptionist in the administrative offices X 13. Lease cost of the corporate jet used by the com-panys executives X 14. Rent on rooms at a Florida resort for holding the annual sales conference. X 15. Attractively designed box for packaging the com-panys productbreakfast cereal
32、 X The McGraw-Hill Companies, Inc., 2006. All rights reserved. Solutions Manual, Chapter 2 19 Exercise 2-3 (15 minutes) CyberGames Income Statement Sales . $1,450,000 Cost of goods sold: Beginning merchandise inventory $ 240,000 Add: Purchases 950,000 Goods available for sale 1,190,000 Deduct: Endin
33、g merchandise inventory 170,000 1,020,000 Gross margin . 430,000 Less operating expenses: Selling expense 210,000 Administrative expense. 180,000 390,000 Net operating income . $ 40,000 The McGraw-Hill Companies, Inc., 2006. All rights reserved. 20 Managerial Accounting, 11th Edition Exercise 2-4 (1
34、5 minutes) Lompac Products Schedule of Cost of Goods Manufactured Direct materials: Beginning raw materials inventory. $ 60,000 Add: Purchases of raw materials . 690,000 Raw materials available for use. 750,000 Deduct: Ending raw materials inventory. 45,000 Raw materials used in production $ 705,000
35、 Direct labor 135,000 Manufacturing overhead . 370,000 Total manufacturing costs. 1,210,000 Add: Beginning work in process inventory 120,000 1,330,000 Deduct: Ending work in process inventory 130,000 Cost of goods manufactured $1,200,000 The McGraw-Hill Companies, Inc., 2006. All rights reserved. So
36、lutions Manual, Chapter 2 21 Exercise 2-5 (15 minutes) A few of these costs may generate debate. For example, some may argue that the cost of advertising a Madonna rock concert is a variable cost since the number of people who come to the rock concert depends on the amount of advertising. However, o
37、ne can argue that if the price is within reason, any Madonna rock concert in New York City will be sold out and the function of advertising is simply to let people know the event will be happening. Moreover, while advertising may affect the number of persons who ultimately buy tickets, the causation
38、 is in one direction. If more people buy tickets, the advertising costs dont go up. Cost Behavior Variable Fixed 1. X-ray film used in the radiology lab at Virginia Mason Hospital in Seattle. X 2. The costs of advertising a Madonna rock con-cert in New York City. X 3. Rental cost of a McDonalds rest
39、aurant build-ing in Hong Kong X 4. The electrical costs of running a roller coaster at Magic Mountain. X 5. Property taxes on your local cinema X 6. Commissions paid to salespersons at Nord-strom. X 7. Property insurance on a Coca-Cola bottling plant X 8. The costs of synthetic materials used to mak
40、e Nike running shoes X 9. The costs of shipping Panasonic televisions to retail stores X 10. The cost of leasing an ultra-scan diagnostic machine at the American Hospital in Paris. X The McGraw-Hill Companies, Inc., 2006. All rights reserved. 22 Managerial Accounting, 11th Edition Exercise 2-6 (15 m
41、inutes) Cost Costing object Direct Cost Indirect Cost 1. The wages of pediatric nurses The pediatric depart-ment X 2. Prescription drugs A particular patient X 3. Heating the hospital The pediatric depart-ment X 4. The salary of the head of pediatrics The pediatric depart-ment X 5. The salary of the
42、 head of pediatrics A particular pediatric patient X 6. Hospital chaplains sal-ary A particular patient X 7. Lab tests by outside contractor A particular patient X 8. Lab tests by outside contractor A particular department X The McGraw-Hill Companies, Inc., 2006. All rights reserved. Solutions Manua
43、l, Chapter 2 23 Exercise 2-7 (15 minutes) Item Differential Cost Opportunity Cost Sunk 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 Pediatrics Department 4. Cost of the new color laser printer. X 5. Rent on the space o
44、ccupied by Radiology 6. The cost of maintaining the old machine X 7. Benefits from a new DNA ana-lyzer . 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 Pediatrics Department and the rent on the space occupied by Radio
45、l-ogy are neither differential costs, nor opportunity costs, nor sunk costs. These are costs that do not differ between the alternatives and are there-fore irrelevant in the decision, but they are not sunk costs since they occur in the future. The McGraw-Hill Companies, Inc., 2006. All rights reserv
46、ed. 24 Managerial Accounting, 11th Edition Exercise 2-8 (15 minutes) 1. No. It appears that the overtime spent completing the job was simply a matter of how the job happened to be scheduled. Under these circum-stances, an overtime premium probably should not be charged to a cus-tomer whose job happe
47、ns to fall at the end of the days schedule. 2. Direct labor cost: 9 hours $14 per hour $126 General overhead cost: 1 hour $7 per hour. 7 Total labor cost $133 3. A charge for an overtime premium might be justified if the customer re-quested a “rush” order that caused the overtime. The McGraw-Hill Co
48、mpanies, Inc., 2006. All rights reserved. Solutions Manual, Chapter 2 25 Exercise 2-9 (15 minutes) 1. Prevention Cost Appraisal Cost Internal Failure Cost External Failure Cost a. Product testing X b. Product recalls. X c. Rework labor and overhead X d. Quality circles X e. Downtime caused by de-fec
49、ts X f. Cost of field servicing. X g. Inspection of goods . X h. Quality engineering X i. Warranty repairs X j. Statistical process control . X k. Net cost of scrap . X l. Depreciation of test equip-ment X m. Returns and allowances arising from poor quality X n. Disposal of defective prod-ucts . X o. Technical support to suppli-ers. X p. Systems development X q. Warranty replacements X r. Field testing at customer site X s. Product design X 2. Prevention costs and appraisal costs are in
