Chapter 1 Smart Book Managerial accounting

Indirect labor costs include ______.

factory security guard wages assembly-line supervisor salary

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

fixed

The contribution approach to constructing income statements distinguishes between ______ costs.

fixed and variable

Differential costs are also known as ____ costs.

incremental, relevant

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

indirect

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

indirect materials

Product costs are also called____________costs

inventoriable or manufacturing

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

manufacturing overhead

The materials that go into the final product are called_______materials

raw

Cost behavior ______.

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

The assumption that cost behavior is strictly linear is reasonably valid within the ____ ____of activity

relevant range

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

variable

Within the relevant range, a cost that changes in direct proportion to changes in the activity level is a ______ cost.

variable

Product costs ______.

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

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

Indirect costs

Indirect materials include ______.

nails, glue, and thread

Based on the following information, compute the cost of goods sold for Spengler Merchandising Corporation. Sales $400,000 Purchases $300,000 Beginning inventory $50,000 Ending inventory $90,000 Selling expenses $70,000 Administrative expenses $30,000 Accounts receivable $110,000

$260,000 Reason: Beginning Inventory ($50,000) + Purchases ($300,000) - Ending Inventory ($90,000) = Cost of Goods Sold

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

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 & Administrative Exp. $60,000

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

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 & Administrative Exp. $60,000

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

Which of the following statements are true?

-A direct cost can be easily and conveniently traced to a specific cost object. -A regional sales manager's salary is a direct cost of the regional office in which the sales manager works.

Which of the following statements are true?

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

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.

Prior to being recorded on the income statement, manufacturers' product costs flow through ______.

-Work in Process -Finished Goods -Raw Materials

Cost objects include ______.

-anything for which cost data is desired -customers *organizational subunits

Opportunity costs ______.

-are benefits that are given up when selecting one alternative over another -should be considered in decision making

Indirect labor costs include ______.

-assembly-line supervisor salary -factory security guard wages

Prime costs include ______.

-direct labor -direct materials

Selling costs include ______.

-sales salaries -advertising -sales commissions

A contribution approach income statement ______.

-separates costs into their fixed and variable components -can assist with management decision making

Which of the following are most likely fixed costs?

Factory insurance Administrative salaries Factory rent

True or false: All of a company's depreciation, property taxes and insurance premiums are considered manufacturing overhead.

False

Which of the following statements are true?

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

Which of the following statements are true?

Sales commissions are period costs. Period costs are expensed when they are incurred.

The definition of net income.

all revenues minus all costs

Opportunity costs ______.

are benefits that are given up when selecting one alternative over another should be considered in decision making

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

behavior

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

behavior

Differential costs ______.

can be fixed or variable

A type of indirect cost incurred to benefit more than one cost object is a(n) ______ cost.

common

Costs that are shared by multiple cost objects in a company are known as ______ costs.

common

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

cost object

Beginning merchandise inventory + Purchases - Ending merchandise inventory =

cost of goods sold

The difference in revenues between two alternatives is called ______.

differential revenue

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

direct labor

A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost.

direct material

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

direct. Reason: Indirect costs cannot be easily traced and must be allocated to products. Reason: Common costs are a type of indirect cost.

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

Indirect materials and indirect labor are classified as ______.

manufacturing overhead

The cost of producing one more unit is the ______ cost.

marginal

The revenue obtained from selling one additional unit of product is called______________revenue

marginal

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

matching

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

Indirect materials include ______.

nails, glue, and thread Reason: Relatively insignificant materials are treated as indirect because it isn't worth the effort to trace the costs.

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

opportunity cost

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

opportunity cost

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

opportunity cost

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

product

Inventoriable costs is another term for costs.

product or manufacturing

The materials that go into the final product are called ____ materials.

raw

Costs that have already been incurred and can not be changed by decisions made in the current period or in future periods are called______________costs

sunk

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

they are incurred

Direct labor is also called______ labor

touch

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 or GAAP contribution

True or false: A cost may be direct or indirect, depending on the cost object.

true

True or false: The finished product of one company can become raw materials for another company.

true

Manufacturing costs include ______.

-manufacturing overhead -direct labor -direct materials

The components of prime costs are direct________ and direct _____ costs

-material -labor

Selling and administrative costs are ______ costs.

direct or indirect

Within the relevant range of activity ______.

fixed costs remain constant in total costs and activity can be approximated by a straight line

The definition of gross margin.

sales revenue minus cost of goods sold

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 or prime - indirect, common or overhead

Manufacturing costs can be divided into three categories: direct____, _________labor and manufacturing ________________

-materials -direct or touch -overhead or burden

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 format statements focus on cost behavior.

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

In an automobile manufacturing plant, the assembly-line workers are classified as _____ _____ cost.

Direct Labor

True or false: Labor costs that can be specifically traced to a product are indirect labor costs.

False

True or false: Removing expenses that do not differ between alternatives could alter a decision.

False

Sales revenue minus variable expenses equals ___ ___ .

contribution margin

Fixed costs are deducted from contribution margin to get net income.

sales revenue minus fixed costs

Contribution margin is ______.

sales revenue minus variable costs

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

Product costs flow through the inventory accounts until the goods are sold, at which time they are matched against sales on the ______.

income statement

Differential costs are also known as_________costs

incremental

The difference in revenues between two alternatives is called ______.

incremental revenue Reason: This is also called differential revenue.

Direct materials and direct labor are both ______ costs.

manufacturing

Factory burden is a synonym for_______________

manufacturing overhead

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 or manufacturing period

Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as ______.

manufacturing overhead Reason: Period costs are nonmanufacturing costs. Reason: Janitor wages are indirect labor, but the other costs listed are not. Reason: Cleaning supplies, taxes, insurance and janitor wages are indirect costs.

Direct labor and overhead costs incurred to change raw materials into finished products are known as_______costs

conversion

A cost that contains both variable and fixed costs elements is called a(n) ____ cost.

mixed

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

mixed

Other names for manufacturing overhead include ______.

-factory overhead -factory burden -indirect manufacturing costs

Nonmanufacturing costs include ______.

-sales commissions -company president's salary

Units that are partially complete are found in ______.

Work in Process

Administrative costs include ______.

executive compensation and public relations costs

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

decision making

A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost.

direct

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

direct