Lanen_02_Instructor_Final.pdf

SM-Ch02-5e.pdf Lanen_5e_IM_Ch_02.pdf Chapter 02 - Solutions.pdf Lanen_02_Instructor_Final.pdf Chapter 02.pdf Fundamentals of Cost Accounting 5th Edition Lanen Solutions Manual Visit TestBankDeal.com to get complete for all chapters

©The McGraw-Hill Companies, Inc., 2017 Solutions Manual, Chapter 2

29 2 Cost Concepts and Behavior Solutions to Review Questions 2-1.Cost is a more general term that refers to a sacrifice of resources and may be either an opportunity cost or an outlay cost. An expense is an outlay cost charged against sales revenue in a particular accounting period and usually pertains only to external financial reports.2-2.Product costs are those costs that are attributed to units of production, while period costs are all other costs and are attributed to time periods.2-3.Outlay costs are those costs that represent a past, current, or future cash outlay.Opportunity cost is the value of what is given up by choosing a particular alternative.2-4.Common examples include the value forgone because of lost sales by producing low quality products or substandard customer service. For another example, consider a firm operating at capacity. In this case, a sale to one customer precludes a sale to another customer.2-5.Yes. The costs associated with goods sold in a period are not expected to result in future benefits. They provided sales revenue for the period in which the goods were sold; therefore, they are expensed for financial accounting purposes.2-6.The costs associated with goods sold are a product cost for a manufacturing firm. They are the costs associated with the product and recorded in an inventory account until the product is sold.

©The McGraw-Hill Companies, Inc., 2017 Fundamentals of Cost Accounting

30 2-7.Both accounts represent the cost of the goods acquired from an outside supplier, which include all costs necessary to ready the goods for sale (in merchandising) or production (in manufacturing).The merchandiser expenses these costs as the product is sold, as no additional costs are incurred. The manufacturer transforms the purchased materials into finished goods and charges these costs, along with conversion costs to production (work in process inventory). These costs are expensed when the finished goods are sold.2-8.Direct materials: Materials in their raw or unconverted form, which become an integral part of the finished product are considered direct materials. In some cases, materials are so immaterial in amount that they are considered part of overhead.

Direct labor: Costs associated with labor engaged in manufacturing activities.

Sometimes this is considered as the labor that is actually responsible for converting the materials into finished product. Assembly workers, cutters, finishers and similar ―hands on‖ personnel are classified as direct labor.Manufacturing

overhead:

All other costs directly related to product manufacture. These costs include the indirect labor and materials, costs related to the facilities and equipment required to carry out manufacturing operations, supervisory costs, and all other support activities.

2-9.Gross margin is the difference between revenue (sales) and cost of goods sold.Contribution margin is the difference between revenue (sales) and variable cost.

2-10.Contribution margin is likely to be more important, because it reflects better how profits will change with decisions.

2-11.Step costs change with volume in steps, such as when supervisors are added.Semivariable or mixed costs have elements of both fixed and variable costs. Utilities and maintenance are often mixed costs.2-12.Total variable costs change in direct proportion to a change in volume (within the relevant range of activity). Total fixed costs do not change as volume changes (within the relevant range of activity).

©The McGraw-Hill Companies, Inc., 2017 Solutions Manual, Chapter 2

31 2-13.A value income statement typically uses a contribution margin framework, because the contribution margin framework is more useful for managerial decision-making. In addition, it splits out value-added and non value-added costs. Therefore, it differs in two

ways from the gross margin income statement: classifying costs by behavior and

highlighting value-added and non value-added costs. It differs from the contribution margin income statement by highlighting the value-added and non value-added costs.2-14.A value income statement is useful to managers, because it provides information that is useful for them in identifying and eliminating non value-added activities.