ACC 220 Chap 1
Product Costs
"attach" to units of product as they are purchased for resale or produced, are also inventorial costs.
A company purchased a 12 month insurance policy on October 1 for $1,200. On the December 31 annual financial statements,
$300 is reported as a expense and $900 is reported as an asset
Which of the following statements are true?
-Period costs do not flow through the inventory accounts. -Period costs are expensed when incurred.
Which of the following are differences between the traditional and contribution format to income statements?
-Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. -Contribution format statements make it easier to predict how decisions affect the future.
Which of the following are most likely fixed costs?
Administrative salaries Factory rent Factory insurance
The finished product of one company can become raw materials for another company.
True
How individual costs react to changes in activity level is referred to as cost
behavior
Fixed costs that cannot easily be changed and often lock a company into a multi-year decision are called --- fixed costs.
committed
Any item for which cost data is desired is called a(n)
cost object
cost objects include
customers organizational subunits anything for which cost data is desired
Differential costs, opportunity costs and sunk costs are all cost classifications used in ______.
decision making
A change in revenues between two alternatives is known as --- revenue or incremental revenue.
differential
Costs that can be easily and conveniently traced to a specific product are called ______ costs.
direct
Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) ______ cost of the customer placing the order.
direct
Materials that become an important component of the finished product whose cost can be easily and conveniently traced to the finished product are
direct
Labor costs that can be easily and conveniently traced to specific products are ______ costs.
direct labor costs
A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost.
direct material
Prime costs include
direct materials and direct labor
Manufacturing costs include ______.
direct materials, direct labor, manufacturing overhead
Selling and administrative costs are ______ costs.
direct or indirect
A cost that can be easily and conveniently traced to a specific cost object is a(n) ---- cost of that cost object, whereas costs that cannot be easily and conveniently traced to that specific cost object are --- costs.
direct; indirect
Administrative costs include ______.
executive compensation and public relations cost
Within the relevant range of activity, ______ costs remain constant in total.
fixed
Within the relevant range of activity ---.
fixed costs remain constant in total and vary per unit, the assumption that cost behavior is strictly linear is reasonably valid
A fixed cost remains fixed ______ within the relevant range of activity.
in total
As the level of activity moves outside of the relevant range, fixed costs, ______.
increase or decrease in discrete steps
A manufacturing cost that cannot be easily traced to a specific cost object is a(n) --- cost.
indirect
Which of the following is not a COST CLASSIFICATION associated with decision making?
indirect costs
Minor items such as nails and glue are usually considered to be ______.
indirect materials
Manufacturing overhead costs include
indirect materials, factory supervisors' salaries, and factory depreciation
Product costs are also called
inventorial costs
Indirect materials and indirect labor are classified as ______.
manufacturing overhead
The revenue from selling one additional unit is called ______ revenue.
marginal
The revenue obtained from selling one additional unit of product is called --- revenue
marginal
The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is recognized is known as the
matching
Manufacturing costs can be divided into three categories: direct ----, ---- labor and manufacturing ----.
materials, direct, overhead
A cost that contains both variable and fixed cost elements is called a(n) --- cost.
mixed
Indirect materials include ______.
nails, glue, and thread
A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n)
opportunity cost
The sum of direct materials and direct labor is called -- cost.
prime
Direct materials, direct labor, and manufacturing overhead are all ______ costs.
product
inventoriable costs is another term for --- costs.
product
cost behavior
refers to how a cost will change as activity level changes, categorizes costs as fixed, mixed and variable
The assumption that cost behavior is strictly linear is reasonably valid within the --- ---- of activity.
relevant range
Contribution margin is ______.
sales revenue minus variable costs
Selling costs include
sales salaries, sales commissions, and advertising
Opportunity costs ______.
should be considered in decision making, are benefits lost when choosing one option over another
Period costs are always expensed on the income statement in the period in which --
they are incurred
Committed fixed costs include ______.
top management salaries, real estate taxes
Direct labor is also called --- labor.
touch
An income statement focusing on product and period costs has been prepared using a(n) --- format, while a(n) ---- format income statement makes a distinction between fixed and variable costs.
traditional, contribution margin
Which type of cost changes in total, in direct proportion to changes in activity level?
variable
Within the relevant range, a cost that changes in direct proportion to changes in the activity level is a ______ cost.
variable
The difference in revenues between two alternatives is called ______.
incremental revenue
Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as
manufacturing overhead
The materials that go into the final product are called -- materials.
raw
Direct materials and direct labor are both ______ costs.
manufacturing
On a traditional income statement, cost of goods sold reports the --- costs attached to merchandise sold during the period, while selling and administrative expenses report all --- costs that have been expensed as incurred.
product, period
indirect labor costs include
factory security guard wages, assembly-line supervisor salary
True or false: Labor costs that can be specifically traced to a product are indirect labor costs.
false
As the level of activity moves outside of the relevant range, --- costs increase or decrease in discrete steps rather than a linear fashion.
fixed
Sales revenue minus all variable expenses equals
contribution margin
All of a company's depreciation, property taxes, and insurance premiums are considered manufacturing overhead.
false