Introduction to Managerial Accounting

1-1 What are the three major elements of product costs in a manufacturing company?

The three major elements of product costs in a manufacturing company are direct materials, direct labor, and manufacturing overhead.

1-2 Define the following: (a) direct materials, (b) indirect materials, (c) direct labor, (d) indirect labor, and (e) manufacturing overhead.

Direct Materials - Materials that become an integral part of a finished product and whose costs can be conveniently traced to it.

Indirect materials - Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it.

Manufactured overhead - All manufacturing costs except direct materials and direct labor.

1-3 Explain the difference between a product cost and a period cost.

Product costs are all costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead.

Period costs are costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued.

1-4 Distinguish between (a) a variable cost, (b) a fixed cost, and (c) a mixed cost.

Variable cost is a cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit.

Fixed cost is a cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level of activity.

Mixed cost is a cost that contains both variable and fixed cost elements

1-5 What effect does an increase in volume have on—

a.Unit fixed costs? Decrease cost

b.Unit variable costs? No cost change

c.Total fixed costs? No cost change

d.Total variable costs? Increase cost

1-9 Distinguish between discretionary fixed costs and committed fixed costs....