Chapter 1

Product costs:

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

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

Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier; traditional income statements focus on cost classifications. Contribution form at statements focus on cost behavior.

Sales revenue minus variable expenses equals ____________ ____________.

Contribution margin

The difference in cost between two alternatives is called a __________ cost.

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 ____________ 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 ____________ materials.

Direct

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

Fixed

A manufacturing costs that cannot be easily traced to a specified cost object is a ____________ cost.

Indirect

Salaries of factory supervisors and factory maintenance personnel are examples of ____________ labor costs.

Indirect

Which of the following is not a cost classification associated with decision-making?

Indirect costs

Inventoriable costs is another term for ____________ costs.

Product

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

behavior

Minor items such as nails and glue are usually considered to be:

indirect materials

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

manufacturing overhead

Mixed costs are also commonly known as semi-_________ costs.

variable

A company purchased a 12 month insurance policy on October 1 at a cost of $1200. On the December 31 annual financial statements:

$300 is reported as an expense and $900 is reported as an asset

Based on the following information, calculate net income for Dana's dress shop using the traditional format. Sales $360,000 gross margin $140,000 contribution margin $110,000 total selling an administrative expenses $60,000

$80,000; gross margin of $140,000 minus total selling and admin expenses of $60,000 equals $80,000

Selling costs include:

Advertising, sales commissions, sales salaries

Differential cost is:

Also known as incremental cost; the difference in cost between two alternatives

Cost objects include:

Anything for which cost data is desired, organizational subunits, customers

In an automobile manufacturing plant, The assembly-line workers are classified as ____________ ____________ cost.

Direct labor

A laptop computer manufacture would consider the computer processor chip to be a ____________ cost.

Direct material

A cost that can be easily and conveniently traced to a specific cost object is a ________ cost of that cost object, where is 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

Which of the following are most likely fixed costs?

Factory rent, administrative salaries, factory insurance

Indirect labor costs include:

Factory security guard wages, assembly-line supervisor salary

A dress manufacturer would consider the cost of relatively inexpensive items like thread to be a part of:

Indirect materials, manufacturing overhead

Direct materials and direct labor are both ____________ costs.

Manufacturing

Indirect materials and indirect labor are classified as ____________.

Manufacturing overhead

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

Matching

A cost that contains both variable and fixed cost elements is a ___________ cost.

Mixed

There are two broad classifications of cost: manufacturing costs and ____________ cost.

Nonmanufacturing

Cost objects include:

Organizational subunits, customers, anything for which cost data is desired

Which of the following statements are true?

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

Cost behavior:

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

Non-manufacturing costs include:

Sales commissions and company president's salary

Costs that have already been incurred and cannot be changed by decisions made in the current period or in future periods are called ____________ costs

Sunk

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

Sunk

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

They are incurred

An income statement focusing on product and period costs has been prepared using a ____________ format, while a ____________ format income statement makes a distinction between fixed and variable costs.

Traditional; contribution

A cost that changes in direct proportion to changes in the activity level is a ____________ cost

Variable

Cost of good sold for a merchandising company, direct materials and commissions are all examples of ____________ cost.

Variable

Which of the following statements are true?

Within the relevant range of activity, fixed costs remain constant in total; the relevant range of activity is approximated by a straight line

Any item for which cost data is desired is called a

cost object

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

decision making

Labor costs that can be easily and conveniently traced to specific products are ____________ costs.

direct labor

Manufacturing costs include

direct materials, direct labor, manufacturing overhead

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

fixed

There are two broad classifications of costs: manufacturing costs and ____________ costs.

nonmanufacturing

Direct materials, direct labor, and manufacturing overhead are all ____________ costs.

product

Cost assumptions are reasonably valid within the ___________ ______________ of activity.

relevant range

Contribution margin is:

sales revenue minus variable costs