Accounting 231 Chapter 1

Using the high-low method, how is fixed cost calculated?

-after the variable cost per unit is calculated -using either the high or low level of activity

What are the three categories of Manufacturing costs

-direct materials -direct labor -manufacturing overhead

within the relevant range of activity, variable costs...

-remain constant per unit -vary in total

What are common costs?

Costs that are shared by multiple cost objects in a company

True or False: A direct cost is sometimes referred to as a common cost

False

True or False: All costs in a merchandising company are period costs

False

True or False: Inventoriable costs are expensed in the period in which they are incurred

False

True or False: Management cannot use account analysis when trying to estimate the components of a mixed cost

False

True or False: Mixed costs are also commonly known as step variable costs

False

True or False: The fixed portion of a mixed cost represents the cost incurred for the actual consumption of a service

False

Define Direct Materials

Materials that become an important component of the finished product and their cost can be easily and conveniently traced to the finished product

What is differential cost

The difference in costs between two alternatives

True of False: A regional sales manager's salary would be a direct cost of the regional office in which the sales manager works

True

True or False: Product costs are also called inventorial costs

True

True or False: A direct cost can be easily and conveniently traced to a specific cost object

True

True or false: Period Costs are expensed when incurred

True

Variable cost: a. remain constant per unit and vary in total b. remain constant in total and vary per unit c. vary both in total and per unit d. remain constant both in total and per unit

a

Within the relevant range, fixed costs: a. should not be expressed on a per unit basis when making decisions b. generally include rent and supervisor salaries c. per unit become progressively larger as the level of activity increases d. remain constant in total regardless of changes in activity

a b d

A dress manufacturer would consider the cost of relatively inexpensive items like thread to be part of: a. indirect materials b. administrative costs c. manufacturing overhead d. direct materials

a c

Which statements regarding the high-low method are true? a. it only uses two data points b. when applying this method, use the data points with the highest and lowest level of cost c. the high-low method should only be used if a scattergraph plot indicates a linear relationship between cost and activity d. it is superior to least-squares regression

a c

which of the following are most likely fixed costs? a. administrative salaries b. electricity to operate factory machines c. factory rent d .factory insurance

a c d

What is differential revenue

a change in revenues between two alternatives

what is a variable cost

a cost that changes in direct proportion to changes in the activity level

define indirect cost

a manufacturing cost that cannot be easily traced to a specific cost object

Cost objects: a. are only assigned direct costs b. may be assigned costs to help control spending c. can be products, customers or jobs

b c

Product cost: a. include all costs involved in making and selling a product b. attach to units of product as they are purchased for resale or produced c. are also called inventoriable costs d. are always expensed in the same period in which the related products are produced

b c

an activity base: a. is a measure of whatever causes fixed cost to occur b. measures whatever causes costs to vary c. is sometimes called a cost driver d. is part of the organization where major operations are planned and carried out

b c

Indirect labor costs include which of the following a. assembly-line worker wages b. factory security guard wages c. administrative assistant salary d. assembly-line supervisor salary

b d

The rise over run formula for the slope of a straight line is the basis of: a. a scattergraph b.least-squares regression c. the high-low method

c. the high-low method

How do you calculate the variable cost per unit using the high-low method?

change in cost divided by change in units (activity)

What financial statement organized cost by their behavior instead of by their function?

contribution format income statement

What do managers use to predict how costs will change as the level of activity changes

cost behavior

what are selling costs?

cost incurred to obtain customers' orders

costs that can be easily and conveniently traced to a specific product are called _____ costs

direct

True or False: An individual cost is either direct or indirect, regardless of the cost object

false

True or False: Period costs are included as part of the cost of goods

false

True or False: The equation for a straight-line makes it easy to calculated the total mind cost for any activity level outside the relevant range

false

true or false: the wages of assembly-line workers are period costs

false

what are committed fixed costs?

fixed costs that cannot easily be changed and often lock a company into a multi year decisions are committed fixed costs

A fixed cost remains fixed _____ within the relevant range of activity

in total `

Salaries of factory supervisors and factory maintenance personnel are examples of _____ labor costs

indirect

define direct labor

labor costs that can be easily and conveniently traced to specific products

What are the two broad classifications of costs?

manufacturing and non manufacturing costs

Factory materials, such as cleaning supplies, that are not components of finished products are classified as?

manufacturing overhead

The revenue obtained from selling one additional unit of product is called _____ revenue

marginal

Cost expensed on the income statement when incurred are ______ costs and ______ cost become part of inventory on the balance sheet

period, inventoriable

Within the _______ of activity, cost assumptions are reasonably valid

relevant range

how do you calculate the contribution margin

sales revenue-variable expenses

What are mixed cost also commonly known as?

semi-variable costs

What type of cost is never relevant and should be disregarded when making decisions

sunk

True or False: Mixed cost contain both fixed and variable cost elements

true

True or False: Period costs are expensed in the same period in which they are incurred

true

True or False: The equation for a straight-line can be used to express the relationship between mixed costs and the level of activity

true

True or False: When mixed costs are represented by a straight-line, the steeper the slope, the higher the variable cost per unit

true

true or false: sales commissions are period costs

true

true or false: A mixed cost has a minimum cost of having a service available and ready for use

true

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

variable

Within the relevant range, ____ costs remain constant on a per unit basis

variable