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Managerial Accounting Fifteenth Edition Ray H. Garrison, D.B.A., CPA Professor Emeritus Brigham Young University Eric W. Noreen, Ph.D., CMA Professor. Solutions manual for Managerial Accounting 15th Edition Ray Garrison, Eric Noreen, Peter Brewer Complete download (test bank link included). Library of Congress Cataloging-in-Publication Data. Garrison, Ray H. Managerial accounting / Ray H. Garrison, Eric W. Noreen, Peter C. Brewer. — 14th ed.
The number of paid days should be used as the activity base rather than the number of units produced. Thread in a garment factory Cups of Coffee Served in a Week 2, 2, 2, Fixed cost The average fixed cost per unit varies inversely with changes in volume. Internal failure costs The Foundational 15 continued Relevant range:
It would also have a steeper slope because the estimated variable cost per unit is higher than the high-low method. Expected custodial supplies expense for 11, guest-days: Advertising by a dental office Apples processed and canned by Del Monte X X 4.
Shipping canned apples from a Del Monte plant to customers Salary of a supervisor overseeing production of printers at Hewlett- Packard Commissions paid to automobile salespersons Depreciation of factory lunchroom facilities at a General Electric plant Steering wheels installed in BMWs Cost of goods sold Variable Advertising expense Fixed Shipping expense Mixed Salaries and commissions Mixed Insurance expense Fixed 2.
Depreciation expense Analysis of the mixed expenses: Shipping expense: Fixed expenses: Advertising expense Maintenance cost at the 75, direct labor-hour level of activity can be isolated as follows: High-low analysis of maintenance cost: Total cost at the high level of activity Total factory overhead cost at 70, direct labor-hours is: 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 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 Selling expenses: Executive salaries 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. Maintenance cost at the 90, machine-hour level of activity can be isolated as follows: Machine- Hours Maintenance Cost High activity level Total maintenance cost at the high activity level.. Solutions Manual, Chapter 2 35 Problem continued 3.
Total overhead cost at an activity level of 75, machine-hours: Fixed costs Solutions Manual, Chapter 2 35 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 Billing costs Executive life insurance F X Problem 30 minutes Note to the Instructor: There may be some exceptions to the answers below.
The purpose of this problem is to get the student to start thinking about cost behavior and cost purposes; try to avoid lengthy discussions about how a particular cost is classified.
Property taxes, factory Boxes used for packaging detergent Ink used in textbook production Fringe benefits, assembly-line workers Yarn used in sweater production Wages of receptionist, executive offices Therefore, the cost formula is: The scattergraph plot appears as follows: Problem 45 minutes 1. High-low method: Number of Scans Utilities Cost High level of activity.
Total cost at high level of activity Units Shipping Sold Expense High activity level 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.
The average product cost for one patio set would be: 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.
High level of activity Total cost—25, DLH The scattergraph is shown below: The change in equipment lease cost from a fixed fee to an hourly rate causes the slope of the regression line to be steeper above 19, DLH, and to be discontinuous between the fixed fee and hourly rate points. The cost formulas computed with the high-low and regression methods are faulty since they are based on the assumption that a single straight line provides the best fit to the data.
Creating two data sets related to the two relevant ranges will enable more accurate cost estimates. Hours Cost High level of activity The scattergraph of direct labor cost versus the number of units produced is presented below: The scattergraph of the direct labor cost versus the number of paid days is presented below: The number of paid days should be used as the activity base rather than the number of units produced.
The scattergraphs reveal a much stronger relation i. Variations in the direct labor costs apparently occur because of the number of paid days in the month and have little to do with the number of units that are produced.
It appears that the direct labor costs are basically fixed with respect to how many units are produced in a month. This would happen if the direct labor workers are treated as full-time employees who are paid even if there is insufficient work to keep them busy. Moreover, for planning purposes, the company is likely to be able to predict the number of paid days in the month with much greater accuracy than the number of units that will be produced.
The scattergraph plot and least-squares regression estimates of fixed and variable costs using Microsoft Excel are shown below: Note that the R2 is approximately 0. The scattergraph plot and regression estimates of fixed and variable costs using Microsoft Excel are shown below: This is a very high R2 which indicates a very good fit.
Total expected etching cost if 5 units are processed: This is a very high R2 which is an indication of a very good fit. The company should probably use direct labor-hours as the activity base, since the fit of the regression line to the data is much tighter than it is with tons mined. The R2 for the regression using direct labor-hours as the activity base is twice as large as for the regression using tons mined as the activity base.
However, managers should look more closely at the costs and try to determine why utilities costs are more closely tied to direct labor-hours than to the number of tons mined.
Expected total cost would be: These approximations appear to be reasonably accurate within the range of 2 to 6 sections, but they may be invalid outside this range. The scattergraph reveals three interesting findings.
First, it indicates the relation between overhead expense and labor hours is approximated reasonably well by a straight line.
However, there appears to be a slight downward bend in the plot as the labor-hours increase—evidence of increasing returns to scale.
This is a common occurrence in practice. Second, the data points are all fairly close to the straight line. This indicates that most of the variation in overhead expenses is explained by labor hours. Third, most of the overhead expense appears to be fixed. Maria should ask herself if this is reasonable. Does the company have large fixed expenses such as rent, depreciation, and salaries?
Using the least-squares regression estimate of the variable overhead cost, the total variable cost per guest is computed as follows: Food and beverages If additional fixed costs were incurred, they should also be subtracted from revenue. However, the price need not be publicized and the lower price could be justified to future clients because this is a charity event.
Another possibility would be for Maria to maintain her normal price but throw in additional services at no cost to the customer. Whether to compete on price or service is a delicate issue that Maria will have to decide after getting to know the personality and preferences of the customer. Quality of conformance 2. Quality costs 3. Quality circles 4. Prevention costs, appraisal costs 5.
Internal failure costs, external failure costs 6.
External failure costs 7. Appraisal costs 8. Prevention costs 9. Internal failure costs External failure costs Prevention costs, appraisal costs Quality cost report Exercise 2B-2 15 minutes 1. Product testing Product recalls Rework labor and overhead.
Quality circles Downtime caused by defects Cost of field servicing Inspection of goods Quality engineering Warranty repairs Statistical process control Net cost of scrap Depreciation of test equipment Returns and allowances arising from poor quality Disposal of defective products Technical support to suppliers Systems development Warranty replacements Field testing at customer site Product design Prevention costs and appraisal costs are incurred in an effort to keep poor quality of conformance from occurring.
Internal and external failure costs are incurred because poor quality of conformance has occurred. Internal failure costs: Machine maintenance Incoming inspection Problem 2B-3 continued From the above analysis it would appear that Mercury, Inc.
Total quality costs have declined from External failure costs, those costs signaling customer dissatisfaction, have declined from 9.
These declines in warranty repairs and customer returns should result in increased sales in the future. Appraisal costs have increased from 2. Internal failure costs have increased from 2. This increase has probably resulted from the increase in appraisal activities.
Defective units are now being spotted more frequently before they are shipped to customers. Prevention costs have increased from 1. The initial effect of emphasizing prevention and appraisal was to reduce external failure costs and increase internal failure costs. The increase in appraisal activities resulted in catching more defective units before they were shipped to customers. As mentioned in Exhibit 1—1 , managerial accounting helps managers perform three vital activities— planning, controlling, and decision making.
Planning involves establishing goals and specifying how to achieve them.
Controlling involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change. Decision making involves selecting a course of action from competing alternatives. Do you like this book? Please share with your friends, let's read it!! Free ebook download XooBooks is the biggest community for free ebook download, audio books, tutorials download, with format pdf, epub, mobi,…and more.
Ray Garrison and Eric Noreen Publisher: McGraw-Hill Education Genres: Accounting Publish Date: January 2, ISBN PDF Language: English Ads. What Is Managerial Accounting? You may also be interested in the following ebook: