StudentsCH01 SM Final

Chapter 1
Managerial Accounting and Cost

Concepts
The Foundational 15
1. Direct materials.................................................
$ 6.00
Direct labor........................................................
3.50
Variable manufacturing overhead.....................
1.50
Variable manufacturing cost per unit................
$11.00
Variable manufacturing cost per unit $11.00

(a)...................................................................
Number of units produced (b)..........................
10,000
Total variable manufacturing cost (a) × $110,00
(b)................................................................... 0
Average fixed manufacturing overhead

per unit (c).....................................................
$4.00
Number of units produced (d)..........................
10,000
40,00
Total fixed manufacturing cost (c) × (d)............ 0
$150,00
Total product (manufacturing) cost.................... 0
Note: The average fixed manufacturing overhead cost per unit

of $4.00 is valid for only one level of activity—10,000 units
produced.
© The McGraw-Hill Companies, Inc., 2018. All rights reserved.
Solutions Manual, Chapter 1 1

2. Sales commissions............................................
$1.00
Variable administrative expense.......................
0.50
Variable selling and administrative per $1.50
unit..................................................................
Variable selling and admin. per unit (a).............

$1.50
Number of units sold (b)...................................
10,000
Total variable selling and admin.
expense
(a) × (b)........................................................ $15,000
Average fixed selling and

administrative expense per unit ($3
fixed selling + $2 fixed admin.) (c)................
$5.00
Number of units sold (d)...................................
10,000
Total fixed selling and administrative
expense (c) × (d)............................................ 50,000
Total period (nonmanufacturing) cost................ $65,000
Note: The average fixed selling and administrative expense per

unit of $5.00 is valid for only one level of activity—10,000 units
sold.
2 Managerial Accounting, 16th edition

The Foundational 15 (continued)
$ 6.00
Direct labor........................................................
3.50
1.50
Sales commissions............................................
1.00
0.50
Variable cost per unit sold.................................
$12.50
$ 6.00
Direct labor........................................................
3.50
1.50
Sales commissions............................................
1.00
0.50
Variable cost per unit sold.................................
$12.50
5. Variable cost per unit sold (a)............................

$12.50
Number of units sold (b)....................................
8,000
$100,00
Total variable costs (a) × (b)............................. 0
6. Variable cost per unit sold (a)............................

$12.50
Number of units sold (b)....................................
12,500
$156,25
Total variable costs (a) × (b)............................. 0
7.

Total fixed manufacturing cost
(see requirement 1) (a)...................................
$40,000
Number of units produced (b)...........................
8,000
Average fixed manufacturing cost per
unit produced (a) ÷ (b)...................................
$5.00
8. Total fixed manufacturing cost

(see requirement 1) (a)...................................
$40,000
12,500
unit produced (a) ÷ (b)...................................
$3.20
9. Total fixed manufacturing cost

(see requirement 1)........................................
$40,000

10.
Total fixed manufacturing cost
(see requirement 1)........................................
$40,000
$1.50
11.Variable overhead per unit (a)...........................
8,000
Total variable overhead cost (a) × (b)............... $12,000

Total fixed overhead (see requirement
1).................................................................... 40,000
Total manufacturing overhead cost................... $52,000
Total manufacturing overhead cost (a)......... $52,000
Number of units produced (b)...................... 8,000

Manufacturing overhead per unit (a) ÷
(b)................................................................... $6.50
12.Variable overhead per unit (a)...........................

$1.50
12,500
Total variable overhead cost (a) × (b)............... $18,750

Total fixed overhead (see requirement
1).................................................................... 40,000
Total manufacturing overhead cost................... $58,750
Total manufacturing overhead cost (a)......... $58,750

Number of units produced (b)...................... 12,500
Manufacturing overhead per unit (a) ÷
(b)................................................................... $4.70
13.Selling price per unit.........................................

$22.00
Variable cost per unit sold

(see requirement 4)........................................
12.50
$ 9.50
Contribution margin per unit.............................

$6.00
14.Direct materials per unit....................................
3.50
Direct labor per unit.........................................
$9.50
Direct manufacturing cost per unit....................
Direct manufacturing cost per unit (a) $9.50
11,000
Total direct manufacturing cost (a) × $104,50
(b)................................................................... 0
Variable overhead per unit (a)......................$1.50

11,00
Number of units produced (b)..................... 0
$16,50
Total variable overhead cost (a) × (b).......... 0
Total fixed overhead (see requirement 40,00
1).................................................................... 0
$56,50
Total indirect manufacturing cost................. 0
15.Direct materials per unit....................................

$6.00
3.50
Direct labor per unit.........................................
Variable manufacturing overhead per 1.50
unit..................................................................
$11.00
Incremental cost per unit produced...................

Note: Variable selling and administrative expenses are
variable with respect to the number of units sold, not the
number of units produced.

Exercise 1-1 (15 minutes)
Direct Indirec
Cost Cost Object Cost t Cost
1 The wages of The pediatric
. pediatric nurses department X
2 Prescription drugs A particular patient
. X
3 Heating the hospital The pediatric
. department X
4 The salary of the The pediatric
. head of pediatrics department X
5 The salary of the A particular
. head of pediatrics pediatric patient X
6 Hospital chaplain’s A particular patient
. salary X
7 Lab tests by outside A particular patient
. contractor X
8 Lab tests by outside A particular
. contractor department X

1. The cost of a hard drive installed in a computer: direct

materials.
2. The cost of advertising in the Puget Sound Computer User

newspaper: selling.
3. The wages of employees who assemble computers from

components: direct labor.
4. Sales commissions paid to the company’s salespeople: selling.
5. The salary of the assembly shop’s supervisor: manufacturing

overhead.
6. The salary of the company’s accountant: administrative.
7. Depreciation on equipment used to test assembled computers

before release to customers: manufacturing overhead.
8. 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.

Perio
Produc d
t Cost Cost
1. Depreciation on salespersons’ cars................ X
2. Rent on equipment used in the factory.......... X
3. Lubricants used for machine maintenance..... X
4. Salaries of personnel who work in the
finished goods warehouse............................ X
5. Soap and paper towels used by factory
workers at the end of a shift........................ X
6. Factory supervisors’ salaries.......................... 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 for factory
employees.................................................... X
11. Depreciation on chairs and tables in the
factory lunchroom........................................ X
12. The wages of the receptionist in the
administrative offices................................... X
13. Cost of leasing the corporate jet used by the
company's executives.................................. X
14. The cost of renting rooms at a Florida resort
for the annual sales conference................... X

15. The cost of packaging the company’s
product......................................................... X

1 Cups of Coffee Served

. in a Week
2,000 2,100 2,200
Fixed cost............................. $1,200 $1,200 $1,20
0
Variable cost........................ 440 462 484
Total cost............................. $1,640 $1,662 $1,68
4
Average cost per cup $0.820 $0.791 $0.76
served *............................. 5
* Total cost ÷ cups of coffee served in a week
2. The average cost of a cup of coffee decreases as the number of

cups of coffee served increases because the fixed cost is
spread over more cups of coffee.

Sunk
Differenti Opportuni
Item al Cost Cost ty 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
. Laboratory Department......
4 Cost of the new color laser
. printer................................ X
5 Rent on the space occupied
. by Radiology.......................
6 The cost of maintaining the
. old machine........................ X
7 Benefits from a new DNA
. analyzer.............................. 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 Laboratory Department and the rent on the
space occupied by Radiology are neither differential costs, nor
opportunity costs, nor sunk costs. These costs do not differ
between the alternatives and therefore are irrelevant in the
decision, but they are not sunk costs because they occur in the
future.

1. Traditional income statement
Cherokee Inc.
Traditional Income Statement
$600,00
Sales ($30 per unit × 20,000 units)............ 0
Cost of goods sold
($24,000 + $180,000 – $44,000).............. 160,000
Gross margin............................................... 440,000
Selling and administrative expenses:
Selling expenses
(($4 per unit × 20,000 units) + $40,000) $120,00
............................................................... 0
Administrative expenses
(($2 per unit × 20,000 units) + $30,000)
............................................................... 70,000 190,000
$250,00
Net operating income.................................. 0
2. Contribution format income statement
Cherokee Inc.
Contribution Format Income Statement
Sales ($30 per unit × 20,000 units)............ $600,00

0
Variable expenses:
Cost of goods sold $160,00
($24,000 + $180,000 – $44,000)........... 0
Selling expenses ($4 per unit × 20,000
units)...................................................... 80,000
($2 per unit × 20,000 units)................... 40,000 280,000
Contribution margin.................................... 320,000
Fixed expenses:
Selling expenses....................................... 40,000
Administrative expenses........................... 30,000 70,000
$250,00

1a. The total direct manufacturing cost incurred is computed as
follows:
Direct materials per unit....................................
$7.00
Direct labor per unit..........................................
4.00
Direct manufacturing cost per unit (a).............. $11.00
Number of units sold (b).................................... 20,000
Total direct manufacturing cost (a) × $220,00
(b)................................................................... 0
1b. The total indirect manufacturing cost incurred is computed as

follows:
Variable manufacturing overhead per $1.50
unit..................................................................
Fixed manufacturing overhead per unit.............
5.00
Indirect manufacturing cost per unit $6.50
(a)...................................................................
Total indirect manufacturing cost (a) × $130,00
(b)................................................................... 0

produced.
2a. The total manufacturing cost that is directly traceable to the

Manufacturing Department is computed as follows:
Direct materials per unit....................................
$7.00

Direct labor per unit..........................................
4.00
Variable manufacturing overhead per 1.50
unit..................................................................
Fixed manufacturing overhead per unit.............
5.00
Total manufacturing cost per unit (a)................ $17.50
$350,00
Total direct costs (a) × (b)................................. 0
2b. None of the manufacturing costs should be treated as indirect

costs when the cost object is the Manufacturing Department.

Exercise 1-7 (continued)
3a. The first step in calculating the total direct selling expense is
to determine the fixed portion of the sales representatives’
compensation as follows:
Fixed selling expense per unit (a)........ $3.50
Number of units sold (b)...................... 20,000
Total fixed selling expense (a) × (b)..... $70,000
Total fixed selling expense (a).............. $70,000

Advertising expenditures (b)................ $50,000
Total fixed portion of the sales
representatives’ compensation (a) ‒
(b)...................................................... $20,000
The second step is to calculate the total direct selling expense

that is traceable to individual sales representatives as follows:
Sales commissions per unit (a)............ $1.00

Number of units sold (b)...................... 20,000
Total sales commission (a) × (b).......... $20,000
Fixed portion of sales representatives’

compensation.................................... 20,000
Total direct selling expense.................. $40,000
3b. The total indirect selling expense that cannot be traced to

individual sales representatives is $50,000. The advertising
expenditures cannot be traced to specific sales
representatives.
4. No. Kubin’s administrative expenses could be direct or indirect


depending on the cost object. For example, the chief financial
officer’s salary would be an indirect cost if the cost object is
units of production; however, his salary would be a direct cost
if the cost object is the Finance Department that he oversees.

$ 7.00
Direct labor........................................................
4.00
1.50
$12.50

(a)...................................................................
20,000
(b)................................................................... 0
Average fixed manufacturing overhead

per unit (c).....................................................
$5.00
Number of units produced (d)..........................
20,000
100,00
Total fixed manufacturing cost (c) × (d)............ 0
$350,00
Total product cost.............................................. 0

produced.
$1.00
0.50
unit..................................................................

$1.50
20,000
expense
(a) × (b)........................................................ $30,000
Average fixed selling and

administrative expense per unit
($3.50 fixed selling + $2.50 fixed
administrative) (c)..........................................
$6.00
Number of units sold (d)...................................
20,000
expense (c) × (d)............................................ 120,000
$150,00
Total period cost................................................ 0
Note: The average fixed selling and administrative expense per

unit of $6.00 is valid for only one level of activity—20,000 units
sold.

$ 7.00
Direct labor........................................................
4.00
1.50
$12.50

(a)...................................................................
22,000
(b)................................................................... 0
Total fixed manufacturing cost (see 100,00
requirement 1)................................................ 0
$375,00
Total product cost.............................................. 0
$1.00
0.50
unit..................................................................

$1.50
18,000
expense
(a) × (b)........................................................ $27,000
Total fixed selling and administrative 120,000

expense (see requirement 2)..........................
$147,00
Total period cost................................................ 0

1. Direct materials.................................. $ 7.00

Direct labor......................................... 4.00
Variable manufacturing overhead...... 1.50
Sales commissions............................. 1.00
Variable administrative expense........ 0.50
Variable cost per unit sold.................. $14.00

Direct labor......................................... 4.00
3. Variable cost per unit sold (a)............. $14.00

Number of units sold (b)..................... 18,000
$252,00
Total variable costs (a) × (b).............. 0
4. Variable cost per unit sold (a)............. $14.00

Number of units sold (b)..................... 22,000
$308,00
Total variable costs (a) × (b).............. 0

Note: The key to answering questions 5 through 8 is to calculate
the total fixed manufacturing overhead costs as follows:
Average fixed manufacturing

overhead cost per unit (a)................ $5.00
Number of units produced (b)............ 20,000
Total fixed manufacturing overhead

(a) × (b)........................................... $100,000
Note: The average fixed manufacturing overhead cost per unit of

$5.00 is valid for only one level of activity—20,000 units
produced.
Once students understand that total fixed manufacturing

overhead is $100,000, questions 5 through 8 are answered as
follows:

5. The average fixed manufacturing overhead per unit is:
Total fixed manufacturing overhead $100,000

(a)....................................................

unit produced (rounded) (a) ÷ (b).... $5.56
6. The average fixed manufacturing overhead per unit is:
Total fixed manufacturing overhead $100,000

(a)....................................................

unit produced (rounded) (a) ÷ (b).... $4.55
7. The total fixed manufacturing overhead remains unchanged at

$100,000.
8. The total fixed manufacturing overhead remains unchanged at

$100,000.


Direct labor......................................... 4.00
Total incremental cost........................ $12.50

Direct labor......................................... 4.00
3. Because the 200 units to be sold to the new customer have

already been produced, the incremental manufacturing cost
per unit is zero. The variable manufacturing costs incurred to
make these units have already been incurred and, as such, are
sunk costs.
4. Sales commission............................... $1.00


1. The company’s variable cost per unit is:
The completed schedule is as follows:
Units produced and sold

30,000 40,000 50,000
Total costs:
$180,00 $300,00
Variable cost........... 0 $240,000 0
Fixed cost................ 300,000 300,000 300,000
$480,00 $600,00
Total costs............... 0 $540,000 0
Cost per unit:
Variable cost........... $ 6.00 $ 6.00 $ 6.00
Fixed cost................ 10.00 7.50 6.00
Total cost per unit. . . $16.00 $13.50 $12.00
2. The company’s contribution format income statement is:
Sales (45,000 units × $16 per unit)................ $720,000

Variable expenses (45,000 units × $6 per
unit).............................................................. 270,000
Contribution margin........................................ 450,000
Fixed expense.................................................. 300,000

Net operating income...................................... $150,000

1. The computations for parts 1a through 1e are as follows:
a. The cost of batteries in Raw Materials:
Beginning raw materials inventory..... 0
Plus: Battery purchases....................... 8,000
Batteries available.............................. 8,000
Minus: Batteries withdrawn................. 7,600
Ending raw materials inventory (a)..... 400
Cost per battery (b)............................. $80
Raw materials on April 30th (a) × (b)... $32,000
b. The cost of batteries in Work in Process:

Beginning work in process inventory. . 0
Plus: Batteries withdrawn for
production........................................ 7,500

Minus: Batteries transferred to
finished goods (7,500 × 90%).......... 6,750
Ending work in process inventory (a). . 750
Work in process on April 30th (a) × (b) $60,000
c. The cost of batteries in Finished Goods:

Beginning finished goods inventory.... 0
Plus: Batteries transferred in from 6,750

work in process (see requirement b)
Minus: Batteries transferred out to
cost of goods sold (6,750 × (100% ‒
30%))................................................ 4,725
Ending finished goods inventory (a).... 2,025

$162,00
th
Finished goods on April 30 (a) × (b). . 0

d. The cost of batteries in Cost of Goods Sold:

Number of batteries (see requirement
c) (a)................................................. 4,725
$378,00
Cost of goods sold for April (a) × (b)... 0
e. The cost of batteries included in selling expense:

Number of batteries (a)....................... 100
Selling expense for April (a) × (b)....... $8,000
2. Raw Materials, Work in Process and Finished Goods would

appear on the balance sheet. Cost of Goods Sold and Selling
Expense would appear on the income statement.

1. True. The variable manufacturing cost per unit will remain the
same within the relevant range.
2. False. The total fixed manufacturing cost will remain the same
within the relevant range.
3. True. The total variable manufacturing cost will increase, so
the total manufacturing cost will increase too.
4. True. The average fixed manufacturing cost per unit will
decrease as the level of activity increases.
5. False. The total variable manufacturing cost will increase
(rather than decrease) as the activity level increases.
6. False. The variable manufacturing cost per unit will remain
the same, but the average fixed manufacturing cost per unit
will decrease as the level of activity increases.
7. True. The variable manufacturing cost per unit of $28 will stay
constant within the relevant range. The $28 figure is
computed as follows:
Total manufacturing cost per unit (a)................ $70.00
Variable manufacturing cost percentage (b)..... 40%
Variable manufacturing cost per unit (a) × $28.00
(b)...................................................................
8. False. The total fixed manufacturing cost of $420,000 does

not change within the relevant range. The $420,000 figure is
Total manufacturing cost per unit (a).. $70.00

Variable manufacturing cost per unit 28.00

(b)....................................................

unit (a) ‒ (b)..................................... $42.00
× 10,00
Number of units produced.................. 0
$420,00
Total fixed manufacturing cost............ 0

9. True. The underlying computations are as follows:
Variable manufacturing cost per unit

(see requirement 7) (a)..................... $28.00
Number of units produced (b).............. 10,050
Total variable manufacturing cost (a) $281,40
× (b).................................................. 0
Total fixed manufacturing cost (see

requirement 8).................................. 420,000
$701,40
Total manufacturing cost..................... 0
Total fixed manufacturing cost (see

requirement 8) (a)........................................... $420,000
Number of units produced (b)........................... 10,050
Average fixed manufacturing cost per unit (a) $41.79
÷ (b)................................................................
11. False. The total variable manufacturing cost will equal

$281,400, computed as follows:
Variable manufacturing cost per unit (see

requirement 7) (a)........................................... $28.00
Number of units produced (b)........................... 10,050
$281,40
Total variable manufacturing cost (a) × (b)....... 0

Variable manufacturing cost per unit (see

requirement 7)................................................ $28.00
Average fixed manufacturing cost per unit

(see requirement 10)...................................... 41.79
Total manufacturing cost per unit...................... $69.79

Cost Classifications for:

(3) (4)
(1)
Predictin (2) Preparing Decision
g Cost Manufacturer Financial
Name of the Cost behavior s Statements Making
Rental revenue forgone, Opportunity
$30,000 per year................... None None None cost
Direct materials cost, $80 per Direct
unit......................................... Variable materials Product
Rental cost of warehouse,
$500 per month..................... Fixed None Period
Rental cost of equipment, Manufacturing
$4,000 per month.................. Fixed overhead Product
Direct labor cost, $60 per unit.. Variable Direct labor Product
Depreciation of the annex Manufacturing
space, $8,000 per year.......... Fixed overhead Product Sunk cost
Advertising cost, $50,000 per
year........................................ Fixed None Period
Supervisor's salary, $3,500 Fixed Manufacturing Product

per month.............................. overhead
Electricity for machines, $1.20 Manufacturing
per unit.................................. Variable overhead Product
Shipping cost, $9 per unit........ Variable None Period
Return earned on
investments, $3,000 per Opportunity
year........................................ None None None cost

The Alpine House, Inc.

$150,00
Sales............................................................ 0
Cost of goods sold
($30,000 + $100,000 – $40,000).............. 90,000
Gross margin............................................... 60,000
Selling expenses (($50 per unit × 200 pairs
of skis*) + $20,000)............................... $30,000
Administrative expenses (($10 per unit ×
200 pairs of skis) + $20,000)................. 22,000 52,000
Net operating income.................................. $ 8,000
*$150,000 sales ÷ $750 per pair of skis = 200 pairs of skis.
The Alpine House, Inc.

$150,00
Sales............................................................ 0

Variable expenses:
Cost of goods sold
($30,000 + $100,000 – $40,000)........... $90,000
Selling expenses
($50 per unit × 200 pairs of skis)........... 10,000
($10 per unit × 200 pairs of skis)........... 2,000 102,000
Fixed expenses:
Selling expenses....................................... 20,000
Administrative expenses........................... 20,000 40,000

3. Since 200 pairs of skis were sold and the contribution margin
totaled $48,000 for the quarter, the contribution margin per
unit was $240 ($48,000 ÷ 200 pair of skis = $240 per pair of
skis).

1. The differential cost is computed as follows:
Cost of a new model 300 (a).............................$313,000

Cost of a new model 200 (b).............................$275,000
Differential cost (a) ‒ (b)................................... $38,000
2. The sunk cost is the cost of the machine purchased seven

years ago for $319,000.
3. The opportunity cost is the $374,000 that could have been

earned by pursuing the forgone option.

Cost Classifications for:
(2)
(1)
Preparing
Predicting
Cost Financial
Cost Item Behavior Statements
1. Hamburger buns at
a Wendy’s
restaurant............. 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. Insurance on a
Bausch & Lomb
factory producing
contact lenses....... Fixed Product
6. Insurance on IBM’s
corporate
headquarters......... Fixed Period
7. Salary of a Fixed Product
supervisor
overseeing
production of
printers at

Hewlett-Packard....
8. Commissions paid to
automobile
salespersons......... Variable Period
9. Depreciation of
factory lunchroom
facilities at a
General Electric
plant...................... Fixed Product
10 Steering wheels
. installed in BMWs. . Variable Product

Problem 1-18 (10 minutes)
1. The direct costs of the Apparel Department are as follows:
Apparel Department cost of sales—Evendale $ 90,000

Store...............................................................
Apparel Department sales commission—

Evendale Store................................................ 7,000
Apparel Department manager’s salary—

Evendale Store................................................ 8,000
Total direct costs for the Apparel $105,000
Department.....................................................
2. The direct costs of the Evendale Store are as follows:
Apparel Department cost of sales—Evendale $ 90,000

Store...............................................................
Store manager’s salary—Evendale Store.......... 12,000

Evendale Store................................................ 7,000
Store utilities—Evendale Store.......................... 11,000
Apparel Department manager’s salary—

Evendale Store................................................ 8,000
Janitorial costs—Evendale Store........................ 9,000
Total direct costs for the Evendale Store...........$137,000
3. 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 $90,000


Store...............................................................

Evendale Store................................................ 7,000
Total direct costs for the Apparel

Department that are also variable costs......... $97,000

Todrick Company
$300,00
Sales............................................................ 0
Variable expenses:
($20,000 + $200,000 – $7,000)............. 0
Selling expense......................................... 15,000
Administrative expense............................ 12,000 240,000
Fixed expenses:
Selling expense......................................... 30,000
Administrative expense............................ 12,000 42,000
$ 18,00
The variable administrative expense shown above ($12,000) is

$300,00
Sales (a)............................................................0
Contribution margin (b).....................................
$60,000
$240,00
Total variable costs (a) ‒ (b).............................. 0

$240,00
Total variable costs (a)....................................... 0
$213,00
Cost of goods sold.............................................0
Variable selling expense....................................
15,000
Cost of goods sold plus variable $228,00

selling expense (b).......................................... 0
Variable administrative expense (a) ‒ $12,000
(b)...................................................................

Problem 1-19 (continued)
The fixed selling expense shown above ($30,000) is computed as

follows:
Contribution margin (a)...................... $60,000

Net operating income (b).................... $18,000
Total fixed costs (a) ‒ (b).................... $42,000
Total fixed costs (a)............................. $42,000

Fixed administrative expense (b)........ $12,000
Fixed selling expense (a) ‒ (b)............ $30,000
Todrick Company
$300,00
Sales............................................................ 0
Cost of goods sold
($20,000 + $200,000 – $7,000)................ 213,000
Gross margin............................................... 87,000
Selling expense
($15,000 + $30,000).............................. $45,000
Administrative expense
($12,000 + $12,000).............................. 24,000 69,000

3. The selling price per unit is $300,000 ÷ 1,000 units sold =
$300.
4. The variable cost per unit is $240,000 ÷ 1,000 units sold =

$240.
5. The contribution margin per unit is $300 ‒ $240 = $60.
6. 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.

Direct or
Indirect Cost of Variable or Fixed
Direct or Particular with Respect to
Indirect Cost of Seniors Served the Number of
the Meals-On- by the Meals- Seniors Served
Wheels On-Wheels by the Meals-On-
Program Program Wheels Program
Variabl
Item Description Direct Indirect Direct Indirect e Fixed
a. The cost of leasing the Meals-On-Wheels

van........................................................... X X X
b. The cost of incidental supplies such as salt,

pepper, napkins, and so on...................... X X* X
c. The cost of gasoline consumed by the

Meals-On-Wheels van............................... X X X
d. The rent on the facility that houses

Madison Seniors Care Center, including
the Meals-On-Wheels program................. X X X
e. The salary of the part-time manager of the

Meals-On-Wheels program....................... X X X
f. Depreciation on the kitchen equipment

used in the Meals-On-Wheels program.... X X X

g. The hourly wages of the caregiver who
drives the van and delivers the meals..... X X* X
h. The costs of complying with health safety

regulations in the kitchen......................... X X X
i. The costs of mailing letters soliciting

donations to the Meals-On-Wheels
program.................................................... X X X
*These costs could be direct costs of serving particular seniors.

1. Marwick’s Pianos, Inc.

For the Month of August
$125,00
Sales (40 pianos × $3,125 per piano)....... 0
Cost of goods sold 98,00
(40 pianos × $2,450 per piano).............. 0
Gross margin............................................. 27,000
Selling expenses:
Advertising........................................... $ 700
Sales salaries and commissions
[$950 + (8% × $125,000)]................. 10,950
Delivery of pianos
(40 pianos × $30 per piano).............. 1,200
Utilities................................................. 350
Depreciation of sales facilities.............. 800
Total selling expenses............................. 14,000
Administrative expenses:
Executive salaries................................. 2,500
Insurance.............................................. 400
Clerical
[$1,000 + (40 pianos × $20 per
piano)]................................................ 1,800
Depreciation of office equipment......... 300

Total administrative expenses................. 5,000
19,00
Total selling and administrative expenses. 0
$
Net operating income................................ 8,000

2. Marwick’s Pianos, Inc.

For the Month of August
Per
Total Piano
Sales (40 pianos × $3,125 per piano)......... $125,000 $3,125
Variable expenses:
Cost of goods sold
(40 pianos × $2,450 per piano).............. 98,000 2,450
Sales commissions (8% × $125,000)........ 10,000 250
Delivery of pianos (40 pianos × $30 per
piano)..................................................... 1,200 30
Clerical (40 pianos × $20 per piano)........ 800 20
Total variable expenses............................... 110,000 2,750
Contribution margin.................................... 15,000 $ 375
Fixed expenses:
Advertising................................................ 700
Sales salaries............................................ 950
Utilities...................................................... 350
Depreciation of sales facilities.................. 800
Executive salaries..................................... 2,500
Insurance.................................................. 400
Clerical...................................................... 1,000
Depreciation of office equipment.............. 300

Total fixed expenses.................................... 7,000
3. 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.
1. The total manufacturing overhead cost is computed as follows:
Direct labor cost (a)........................................... $15,000
Direct labor as a percentage of total

conversion costs (b)........................................ 30%
Total conversion cost (a) ÷ (b)........................... $50,000
Total conversion cost (a)................................... $50,000

Direct labor cost (b)........................................... $15,000
Total manufacturing overhead cost (a) ‒ (b)..... $35,000
2. The total direct materials cost is computed as follows:


Direct labor cost (a)........................................... $15,000
Direct labor as a percentage of total prime

costs (b).......................................................... 40%
Total prime cost (a) ÷ (b)................................... $37,500
Total prime cost (a)........................................... $37,500

Direct labor cost (b)........................................... $15,000
Total direct materials cost (a) ‒ (b).................... $22,500
3. The total amount of manufacturing cost is computed as

follows:
Direct materials cost......................................... $22,500

Direct labor cost................................................ 15,000
Manufacturing overhead cost............................ 35,000
Total manufacturing cost................................... $72,500
4. The total variable selling and administrative cost is computed

as follows:
Total sales (a)....................................................$120,000

Sales commission percentage (b)...................... 5%
Total variable selling and administrative

cost (a) × (b)................................................... $6,000


5. The total variable cost is computed as follows:
Direct materials cost......................................... $22,500

Direct labor cost................................................ 15,000
Sales commissions............................................ 6,000
Total variable cost.............................................. $43,500
6. The total fixed cost is computed as follows:
Total selling and administrative

expenses (a)...................................... $18,000
Sales commissions (b)......................... $6,000

expense (a) ‒ (b)............................... $12,000
Total fixed manufacturing overhead.... 35,000
Total fixed cost..................................... $47,000
7. The total contribution margin is calculated as follows:
Sales (a)............................................................$120,000
Variable costs (b)............................................... $43,500
Contribution margin (a) ‒ (b)............................. $76,500

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.
Manufacturin
g
Variable Administrativ (Product)
or Selling e Cost
Direc
Cost Item Fixed Cost Cost t Indirect
1. Property taxes, factory.......................... F X
2. Boxes used for packaging detergent
produced by the company.................. V X
3. Salespersons’ commissions................... V X
4. Supervisor’s salary, factory................... F X
5. Depreciation, executive autos............... F X
6. Wages of workers assembling
computers........................................... V X

7. Insurance, finished goods warehouses.. F X
8. Lubricants for production equipment.... V X
9. Advertising costs................................... F X
10. Microchips used in producing
calculators.......................................... V X
11. Shipping costs on merchandise sold..... V X
12. Magazine subscriptions, factory
lunchroom........................................... F X
13. Thread in a garment factory.................. V X
14. Executive life insurance........................ F X

Manufacturin
g
Variable Administrativ (Product)
or Selling e Cost
Direc
Cost Item Fixed Cost Cost t Indirect
15. Ink used in textbook production............ V X
16. Fringe benefits, materials handling
workers............................................... V X
17. Yarn used in sweater production........... V X
18. Wages of receptionist, executive
offices................................................. F X

1a. The total product cost is computed as follows:
Direct materials.................................................$ 69,000

Direct labor........................................................ 35,000
Total manufacturing overhead........................... 43,000
Total product cost..............................................$147,000
1b. The total period cost is computed as follows:
Total selling expense......................................... $30,000

Total administrative expense............................. 29,000
Total period cost................................................ $59,000
2a. The total direct manufacturing cost is computed as follows:

Direct labor........................................................ 35,000
Total direct manufacturing cost.........................$104,000
2b. The total indirect manufacturing cost is computed as follows:
Variable manufacturing overhead..................... $15,000

Fixed manufacturing overhead.......................... 28,000
Total indirect manufacturing cost...................... $43,000
3a. The total manufacturing cost is computed as follows:

Direct labor........................................................ 35,000
Total manufacturing cost...................................$147,000

3b. The total nonmanufacturing cost is computed as follows:
Total selling expense......................................... $30,000

Total administrative expense............................. 29,000
Total nonmanufacturing cost............................. $59,000
3c. The total conversion cost is computed as follows:
Direct labor........................................................ $35,000

Total conversion cost......................................... $78,000
The total prime cost is computed as follows:

Direct labor........................................................ 35,000
Total prime cost.................................................$104,000
4a. The total variable manufacturing cost is computed as follows:

Direct labor........................................................ 35,000
Variable manufacturing overhead..................... 15,000
Total variable manufacturing cost.....................$119,000
4b. The total amount of fixed cost for the company as a whole is
Fixed manufacturing overhead.......................... $28,000


Fixed selling expense......................................... 18,000
Fixed administrative expense............................ 25,000
Total fixed cost................................................... $71,000

4c. The variable cost per unit produced and sold is computed as
follows:

Direct labor........................................................ 35,000
Total variable manufacturing overhead............. 15,000
Variable selling expense.................................... 12,000
Variable administrative expense....................... 4,000
Total variable cost (a)........................................$135,000
Number of units produced and sold (b)............. 1,000
Variable cost per unit produced and sold

(a) ÷ (b).......................................................... $135
5a. The incremental manufacturing cost is computed as follows:

Direct labor........................................................ 35,000
Variable manufacturing overhead..................... 15,000
Total incremental cost (a)..................................$119,000
Number of units produced and sold (b)............. 1,000
Incremental cost per unit produced (a) ÷ $119
(b)...................................................................

1. Milden Company
For the Next Quarter
$1,200,00
Sales (12,000 units × $100 per unit).... 0
Variable expenses:
(12,000 units × $35 unit)................. 0
Sales commission (6% ×
$1,200,000)...................................... 72,000
Shipping expense
(12,000 units × $9.10 per unit)........ 109,200
601,20
Total variable expenses......................... 0
Contribution margin.............................. 598,800
Fixed expenses:
Advertising expense........................... 210,000
Shipping expense................................ 28,000
Administrative salaries........................ 145,000
Insurance expense.............................. 9,000
Depreciation expense......................... 76,000
468,00
Total fixed expenses.............................. 0
$ 130,80
Net operating income............................ 0

2. Milden Company
Traditional Format Income Statement
For the Next Quarter
$1,200,00
Sales (12,000 units × $100 per unit)..... 0
Cost of goods sold
(12,000 units × $35 per unit).............. 420,000
Gross margin.......................................... 780,000
Advertising........................................ $210,000
Sales commissions
(6% × $1,200,000)]........................ 72,000
Shipping expense
[$28,000 + (12,000 units × $9.10
per unit)]......................................... 137,200
Administrative salaries...................... 145,000

Insurance expense............................ 9,000
Depreciation expense........................ 76,000
Total selling and administrative
expenses............................................. 649,200
$ 130,80
Net operating income............................. 0

Solutions Manual, Appendix 1A

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Chapter 1

Managerial Accounting and Cost

Variable manufacturing cost per unit $11.00

Average fixed manufacturing overhead

Note: The average fixed manufacturing overhead cost per unit

Solutions Manual, Chapter 1 1

Variable selling and admin. per unit (a).............

Average fixed selling and

Note: The average fixed selling and administrative expense per

© The McGraw-Hill Companies, Inc., 2018. All rights reserved.

2 Managerial Accounting, 16th edition

5. Variable cost per unit sold (a)............................

6. Variable cost per unit sold (a)............................

Solutions Manual, Chapter 1 3

8. Total fixed manufacturing cost

9. Total fixed manufacturing cost

© The McGraw-Hill Companies, Inc., 2018. All rights reserved.

4 Managerial Accounting, 16th edition

Total variable overhead cost (a) × (b)............... $12,000

Total manufacturing overhead cost................... $52,000

Total manufacturing overhead cost (a)......... $52,000

Number of units produced (b)...................... 8,000

12.Variable overhead per unit (a)...........................

Total variable overhead cost (a) × (b)............... $18,750

Total manufacturing overhead cost................... $58,750

Total manufacturing overhead cost (a)......... $58,750

© The McGraw-Hill Companies, Inc., 2018. All rights reserved.

Solutions Manual, Chapter 1 5

13.Selling price per unit.........................................

Variable cost per unit sold

© The McGraw-Hill Companies, Inc., 2018. All rights reserved.

6 Managerial Accounting, 16th edition

Direct manufacturing cost per unit (a) $9.50

Variable overhead per unit (a)......................$1.50

15.Direct materials per unit....................................

© The McGraw-Hill Companies, Inc., 2018. All rights reserved.

Solutions Manual, Chapter 1 7

© The McGraw-Hill Companies, Inc., 2018. All rights reserved.

8 Managerial Accounting, 16th edition

© The McGraw-Hill Companies, Inc., 2018. All rights reserved.

Solutions Manual, Chapter 1 9

1. The cost of a hard drive installed in a computer: direct

2. The cost of advertising in the Puget Sound Computer User

3. The wages of employees who assemble computers from

4. Sales commissions paid to the company’s salespeople: selling.

5. The salary of the assembly shop’s supervisor: manufacturing

6. The salary of the company’s accountant: administrative.

7. Depreciation on equipment used to test assembled computers

8. Rent on the facility in the industrial park: a combination of

© The McGraw-Hill Companies, Inc., 2018. All rights reserved.

10 Managerial Accounting, 16th edition

© The McGraw-Hill Companies, Inc., 2018. All rights reserved.

Solutions Manual, Chapter 1 11

© The McGraw-Hill Companies, Inc., 2018. All rights reserved.

12 Managerial Accounting, 16th edition

1 Cups of Coffee Served

* Total cost ÷ cups of coffee served in a week

2. The average cost of a cup of coffee decreases as the number of

© The McGraw-Hill Companies, Inc., 2018. All rights reserved.