Solution Manual for Managerial Accounting 7th Edition By Wild 3. A customer orientation has led companies to adopt the principles of the lean business model in response to consumer demands. The essence of customer orientation is that all managers and employees should be sensitive to the wants and needs of customers, attempting to develop flexible product designs and production processes that are responsive to changes in customer demands along with minimization of defects. They are increasingly adopting management practices such as total quality management (TQM), just-in-time (JIT) manufacturing, and continuous improvement (CI). 4. Direct labor refers to the efforts of employees who physically convert materials to finished product. Indirect labor refers to the efforts of factory employees who do not work specifically on converting direct materials into finished products and whose efforts are not clearly associated (or traceable) with specific units or batches of product. 5. Factory overhead is limited to indirect costs that are incurred in the production process. That is, it consists of activities that support the production process, such as indirect material, indirect labor, heat, and related factory utilities. Selling and administrative overhead costs do not pertain to the production process. Instead, selling and administrative overhead are activities involved with selling the product and running the business. Accordingly, selling and administrative overhead costs are expensed as period costs. 6. Direct materials are raw materials that physically become part of the product and can be clearly traced to specific units or batches of product. Indirect materials are used in the production process but either do not become a part of the product or are not easily traceable to units or batches of product. Some materials are identified as indirect because they are of insignificant value or it is not cost beneficial to trace them to finished products. 7. Direct labor is both a prime cost and a conversion cost. 8. Direct costs of iPhones include: costs of materials such as smartphone cameras, memory chips, screens, and processors, as well as the labor of workers who assemble the products. Indirect costs include: cost of supervisors’ salaries, factory lighting, factory heat, wages of maintenance workers, depreciation of factory equipment, insurance on the factory buildings, and property taxes on the factory buildings. Note: Other answers are possible as these lists are not comprehensive. 9. The production manager should likely not be evaluated on the basis of operating expenses. Operating expenses are not under the influence of production managers, and they should not be held accountable for them. 10. Management usually must be able to predict financial performance to be successful. Therefore, understanding how costs behave under different market conditions and production schedules enables them to better predict financial performance and to plan accordingly. 11. Product costs are capitalized because they represent a future value (an asset) to the business. Period costs are expensed because they are consumed in the current period.

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