Chapter 1 Study

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

Cost behavior ______.

Reason: refers to how a cost will change as activity level changes Within the relevant range of activity, assumptions made about cost behavior are reasonably valid.

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. Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier.

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

behavior

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

decision making

Within the relevant range of activity, ______ costs remain constant in total.

fixed

Within the relevant range of activity ______.

fixed costs remain constant in total

The difference in revenues between two alternatives is called ______.

incremental cost

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

indirect cost

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

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

mixed

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

opportunity Cost

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

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

Differential cost is ______.

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

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

Product costs are also called________costs.

inventoriable

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

variable

Within the relevant range of activity ______.

variable costs do not change in total, only per unit costs and activity can be approximated by a straight line fixed costs remain constant in total