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Solutions Manual, Chapter 2
19
Chapter 2
Managerial Accounting and Cost Concepts
Solutions to Questions
2-1
Managers carry out three major
activities in an organization: planning, directing
and motivating, and controlling. Planning
involves establishing a basic strategy, selecting a
course of action, and specifying how the action
will be implemented. Directing and motivating
involves mobilizing people to carry out plans and
run routine operations. Controlling involves
ensuring that the plan is actually carried out and
is appropriately modified as circumstances
change.
2-2
The planning and control cycle involves
formulating plans, implementing plans,
measuring performance, and evaluating
differences between planned and actual
performance.
2-3
In contrast to financial accounting,
managerial accounting: (1) focuses on the needs
of managers rather than outsiders; (2)
emphasizes decisions affecting the future rather
than the financial consequences of past actions;
(3) emphasizes relevance rather than objectivity
and verifiability; (4) emphasizes timeliness
rather than precision; (5) emphasizes the
segments of an organization rather than
summary data concerning the entire
organization; (6) is not governed by GAAP; and
(7) is not mandatory.
2-4
The three major elements of product
costs in a manufacturing company are direct
materials, direct labor, and manufacturing
overhead.
2-5
a. Direct materials are an integral part of a
finished product and their costs can be
conveniently 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 product only at
great cost or inconvenience.
c. Direct labor consists of labor costs that
can be easily traced to particular products.
Direct labor is