Chapter 1 Learn Smart
A company purchased a 12 month insurance policy on October 1 at a cost of $1,200. On the December 31 annual financial statements:
$300 is reported as expense and $900 is reported as an asset
quality cost information reports
-help identify the financial cost of defects -show managers if quality control costs are poorly distributed -give managers an idea of where to focus quality control efforts
when the quality of conformance is low
-total quality cost is high -most of the quality cost is internal and external failure cost
True or False: All of a company's depreciation, property taxes, and insurance premiums are considered manufacturing overhead
False
True or False: Removing expenses that do not differ between alternatives could alter a decision
False
True or False: Presenting fixed costs on an average per unit basis makes them look like they are variable costs.
True
the more effective a company's __ activites, the greater the level of __ failure costs
appraisal internal
the more effective a company's __ activities, the greater the level of __ failure costs
appraisal / internal
fixed costs that cannot easily be changed and often lock a company into a multi-year decision are __ fixed costs
committed
costs that are shared by multiple cost objects in a company are known as __ costs
common
Direct labor and overhead costs incurred to change raw materials into finished products are known as ___ costs
conversion
any item for which cost data is desired is called an ___ ___
cost object
the relative proportion of each type of cost in an organization is known as the company's ___ ____
cost structure
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
processes that are out of control are capable of producing
defective products
prime costs are
direct materials and direct labor
fixed costs that usually arise from annual spending decisions by management are __ fixed costs
discretionary
the contribution approach to constructing income statement distinguishes between ___ costs
fixed and variable
a fixed cost remains fixed ___ within the relevant range of activity
in total
differential costs are also known as __ costs
incremental
salaries of factory supervisors and factory maintenance personnel are examples of ___ labor costs
indirect
manufacturing overhead costs include
indirect materials, factory supervisors' salaries, and factory depreciation
costs that result from identifying defects before products are shipped to customers and include the cost of scrap and rework are ___ costs
internal failure
discretionary fixed costs include
management training programs advertising
the accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is known as the __ principle
matching
when it comes to quality of conformance, an economy car:
may have the same quality of conformance as a luxury car
there are 2 broad classifications of costs: manufacturing costs and ___ costs
nonmanufacturing
inventoriable costs is another term for __ costs
product
products that meet or exceed their expectations and are free from defects that mar or degrade their performance are said to have a high __ of __.
quality / conformance
small groups of employees that meet regularly to discuss ways to improve quality are referred to as __ ___
quality circles
typical prevention costs include:
quality circles statistical process control
the materials that go into the final product are called __ materials
raw
prior to being recorded on the income statement, manufacturers' product costs flow through:
raw materials work in process finished goods
cost assumptions are reasonably valid within the __ __ of activity
relevant range
the level of activity within which variable and fixed assumptions are valid is known as the ___ ___
relevant range
True or False: A cost may be direct or indirect, depending on the cost object
true
common activity bases include:
units sold machine hours direct labor hours
cost of goods sold for a merchandising company, direct materials and commissions are all examples of ___ costs
variable
Prevention, appraisal, internal failure and external failure costs incurred are detailed on an ___ ___ report
quality cost