Ch 1

Product Costs

"attach" to units of product as they are purchased for resale or produced are also called inventoriable 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

Manufacturing costs can be divided into three categories: direct -, labor, and manufacturing -.

-materials -direct or touch -overhead or burden

Which of the following statements are true?

Period costs do not flow through the inventory accounts. Period costs are expensed when incurred.

Sales revenue minus all variable expenses equals - - .

contribution margin

Sales revenue minus all variable expenses equals - -.

contribution margin

Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) ______ cost of the customer placing the order.

direct

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

Manufacturing costs include ______.

direct materials, direct labor, manufacturing overhead

Selling and administrative costs are ______ costs.

direct or indirect

Differential costs are also known as - costs.

incremental

A manufacturing cost that cannot be easily traced to a specific cost object is a(n)

indirect

The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is recognized is known as the - principle.

matching

Inventoriable costs is another term for - costs.

product

The assumption that cost behavior is strictly linear is reasonably valid within the - - of activity

relevant range

Nonmanufacturing costs include:

sales commissions company president's salary

Contribution margin is ______.

sales revenue minus variable costs

Within the relevant range of activity-

the assumption that cost behavior is strictly linear is reasonably valid fixed costs remain constant in total and vary per unit

Cost of goods sold for a merchandising company, direct materials and commissions are all examples of - costs.

variable

Given: Sales of $360,000, Gross Margin of $140,000, Contribution Margin of $110,000, and Total Selling & Administrative Exp. of $60,000, net income using the traditional income statement format equals ______.

$80,000 Gross Margin of $140,000 - Total Selling & Admin. Exp. of $60,000 = $80,000.

Which of the following are most likely fixed costs?

Administrative salaries Factory rent Factory insurance

Product costs ______.

are also called inventoriable costs "attach" to units of product as they are purchased for resale or produced

Period costs ______.

are expensed in the period incurred include all costs that are not product costs

How individual costs react to changes in activity level is referred to as cost -

behavior

cost objects include

customers organizational subunits anything for which cost data is desired

A cost that contains both variable and fixed cost elements is a(n) ______ cost.

mixed

Opportunity costs ______.

should be considered in decision making are benefits lost when choosing one option over another

Differential cost is ______.

the difference in cost between two alternatives also known as incremental cost

Which of the following is not a COST CLASSIFICATION associated with decision making?

Indirect costs

Cost objects include:

customers. organizational subunits. anything for which cost data is desired.

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 cost that contains both variable and fixed cost elements is called a(n) - cost.

mixed

Differential costs, opportunity costs and sunk costs are all cost classifications used in ______.

decision making

A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n) - - .

opportunity cost

Which of the following are differences between the traditional and contribution format to income statements?

Contribution format statements make it easier to predict how decisions affect the future. Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior.

A change in revenues between two alternatives is known as - revenue or incremental revenue.

differential

Cost behavior ______.

categorizes costs as fixed, mixed and variable refers to how a cost will change as activity level changes

Any item for which cost data is desired is called a(n)

cost object

Period costs are always expensed on the income statement in the period in which ______.

they are incurred

Which type of cost changes in total, in direct proportion to changes in activity level?

variable

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

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

Costs that can be easily and conveniently traced to a specific product are called ______ costs.

direct