Chapter 1 Smartbook Assignment

Committed fixed costs include _____ -Research -Public relations -Real estate taxes -Top management salaries

-Real estate taxes -Top management salaries

Cost behavior _____ (2 answers )

-Refers to how a cost will change as activity level changes (cost structure) -Categorizes costs as fixed, mixed and variable

Variable costs _____ (2 answers)

-Vary in total -Remain constant per unit

On April 1st, an automobile manufacturer had no beginning inventories. It purchased 8,400 batteries at a cost of $83 per battery. It withdrew 7,800 batteries from the storeroom during the month. Of these, 50 were used to replace batteries in cars being used by the company's traveling sales staff. The remaining batteries withdrawn from the storeroom were installed in cars being manufactured by the company. Of the cars in production during April, 80 percent were completed and transferred from work in process to finished goods. Of the cars completed during the month, 20 percent were unsold at April 30th. How much of the total battery cost would be included in Raw Materials at the end of April?

8,400 batteries - 7,800 batteries = 600 batteries * $83 = $49,800

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

Direct Material

As the level of activity moves outside of the relevant range, _____ costs increase or decrease in discrete steps rather than an linear fashion

Fixed

In the equation Y = a + bX, a = total _____ cost

Fixed

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

Costs that remain constant in total and vary per unit are _____ costs

Fixed costs

Contribution margin is _____

Sales revenue minus variable costs

Cost behavior patterns such as salaried employees are often called _____-_____ costs

Step-variable

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

They are incurred

In the equation Y = a + bX, Y is the _____

Total mixed cost

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

Variable cost

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

Variable costs

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

Indirect labor costs include ______. -administrative assistant salary -factory security guard wages -assembly-line supervisor salary -assembly-line worker wages

-Factory security guard wages -Assembly-line supervisor salary

Period costs Blank______. -are expensed in the period incurred -flow through the inventory accounts -are included as part of the cost of goods -include all costs that are not product costs

-are expensed in the period incurred -include all costs that are not product costs

Fixed costs that cannot easily be changed and often lock a company into multi-year decision are called _____ fixed costs

Committed

The relative proportion of each type of cost in an organization is known as the company's _____ _____

Cost structure

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 principle

A cost that contains both variable and fixed costs elements is called a _____ cost

Mixed

Because managers need cost data organized by cost behavior to aid in planning, controlling, and decision making, the _____ format income statement is not very useful for internal reporting purposes

Traditional

Administrative costs include Blank______.

executive compensation and public relations costs

Discretionary fixed costs include _____ (2 answers)

-Management training programs -Advertising

An activity base _____

-Measured whatever causes costs to vary -Is sometimes called a cost driver

Sales revenue - variable expenses equals _____ _____

Contribution margin

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

Conversion costs

The relative proportion of each type of cost in an organization is known as the company's _____ ______

Cost structure

Inventoriable costs is another term for _____ costs

Product costs

The assumption that cost behavior is strictly linear is reasonably valid within the _____ _____ of activity

Relevant range

Variable costs ______.

Remain constant per unit and vary in total

The contribution approach to constructing income statements _____ -Distinguishes between product and period costs -Aids in decision making -Is used primarily for external reporting -Distinguishes between fixed and variable costs

-Aid in decision making -Distinguishes between fixed and variable costs

Step-variable costs _____

-Can be adjusted quickly as conditions change -May include total salaried employee expense

On a traditional format income statement _____ -Cost of goods sold includes both fixed and variable costs -Gross margin is reported -Contribution margin is reported -Selling and administrative expenses are reported in product costs

-Cost of goods sold includes both fixed and variable costs -Gross margin is reported

Common activity bases include _____ -Direct labor hours -Machine hours -Units sold -Scrapped units

-Direct labor hours -Machine hours -Units sold

Fixed costs that can be cut for short period of time with minimal damage to the long-run goals of the organization are called _____ fixed costs. (2 answers)

-Discretionary -Managed

The contribution approach to constructing income statements _____ -Distinguishes between fixed and variable costs -Distinguishes between product and period costs -Aids in decision making -Is used primarily for external reporting

-Distinguishes between fixed and variable costs -Aids in decision making

The traditional income statement _____ -Provides information in the way managers need to make decisions -Does not distinguish between fixed and variable costs -Is useful for external reporting purposes -Adds all selling and administrative expenses together

-Does not distinguish between fixed and variable costs -Is used for external reporting purposes -Adds all selling and administrative expenses together

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

Behavior

Fixed costs that cannot easily be changed and often lock a company into a multi-year decision are called _____ fixed costs

Committed fixed costs

Fixed costs that usually arise from annual spending decisions by management are called _____ or managed fixed costs

Discretionary

Net income equation using traditional income statement format

Gross margin - total selling and administrative expenses

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

Income statement

As the level of activity moves outside of the relevant range, fixed costs, _____

Increase or decrease in discrete steps

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

Indirect

Salaries of factory supervisor and factory maintenance personnel are examples of ____ labor costs

Indirect labor costs

Cost structure _____

Is the relative proportion of each type of cost in an organization

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

Manufacturing overhead

Indirect materials and indirect labor are classified as Blank______.

Manufacturing overhead

As a general rule fixed costs should _____ be expressed on an average per-unit basis in internal reports

Not

On a traditional format income statement _____ -Gross margin is reported -Contribution margin is reported -Cost of goods sold includes both fixed and variable costs -Selling and administrative expenses are reported in product costs

-Gross margin is reported -Cost of goods sold includes both fixed and variable costs

On a traditional format income statement _____ -Selling and administrative expenses are reported in product costs -Gross margin is reported -Contribution margin is reported -Cost of goods sold includes both fixed and variable cost

-Gross margin is reported -Cost of goods sold includes both fixed and variable costs

An activity base _____ (2 answers)

-Measures whatever causes costs to vary -Is sometimes called a cost driver

Within the relevant range of activity _____

-The assumption that cost behavior is strictly linear is reasonably valid -Fixed costs remain constant in total and vary per unit

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

Which of the following are differences between the traditional and contribution format to income statements? -The traditional income statement is for internal use, while the contribution format income statement is for external use -Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior -Contribution format statements make it easier to predict how decisions affect the future

-Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior -Contribution format statements make it easier to predict how decisions affect the future

Presenting fixed costs on an average per unit basis makes them look like they are variable costs. True or False

True. When fixed costs are expressed on an average per unit basis, it can give the false impression that total fixed costs change with changes in activity