Managerial Accounting and Cost Concepts

Direct labor is also called _______ labor.

touch

True or false: Another term for direct materials is raw materials.

False

True or false: Assembly-line workers' wages are period costs.

False

In the equation Y = a + bX, b denotes the: I. level of activity II. fixed cost per unit of activity III. variable cost per unit of activity IV. slope of the line

III. variable cost per unit of activity IV. slope of the line

Costs incurred to identify defective products before they are shipped to customers are _______ costs. a. appraisal b. internal failure c. prevention d. external failure

a. appraisal

When using the high low method, the change in cost divided by the change in units equals: a. total variable cost b. the variable cost per unit c. the fixed cost per unit d. total cost e. total fixed cost

b. the variable cost per unit

Based on the following information, calculate net income for Dana's Dress Shop using the traditional formal. - Sales = $360,000 - Gross Margin = $140,000 - Contribution Margin = $110,000 - Total Selling & Administrative Exp. = $60,000 a. $160,000 b. $80,000 c. $50,000 d. $190,000

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

The slope (b) of the regression line represent the _______ cost per unit of activity. a. fixed b. variable c. total

b. variable

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

behavior

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 a. $370,000 b. $340,000 c. $260,000 d. $140,000

c. $260,000 Cost of Goods Sold: = Beginning inventory + Purchases - Ending inventory = $50,000 + $300,000 - $90,000 = $260,000

Cost behavior is considered linear whenever: a. a straight line approximates the difference between cost and activity b. the relationship between cost and activity cannot be represented by a line c. the difference between cost and activity is zero d. a straight line approximates the relationship between cost and activity

d. a straight line approximates the relationship between cost and activity

A change in revenues between two alternatives is known as _______ revenue or incremental revenue.

differential

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

direct

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

direct labor

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

indirect

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

marginal

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

nonmanufacturing costs

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

opportunity cost

Prime costs are: I. manufacturing overhead II. direct materials III. selling and administrative expenses IV. direct labor

II. direct materials IV. direct labor

Selling costs include: I. sales salaries II. administrative salaries III. sales commissions IV. advertising

I. sales salaries III. sales commissions IV. advertising

The more effective a company's _______ activities, the greater the level of _______ failure costs.

appraisal internal

Costs incurred in an attempt to lower the number of products manufactured with defects are _______ costs. a. appraisal b. prevention c. internal failure

b. prevention

Marginal cost is: a. the cost incurred to produce one more unit of a product. b. the cost that can be traced to a specific product. c. another name for the fixed cost per unit. d. what is given up by selecting one alternative over another.

a. the cost incurred to produce one more unit of a product.

Product costs are also called _______ costs.

inventoriable

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

When using the high-low method, the slope of the line equals the _______ cost per unit of activity.

variable

Differential cost is: I. the difference in cost between two alternatives II. the same as opportunity cost III. never relevant to a product decision IV. also known as incremental cost

I. the difference in cost between two alternatives IV. also known as incremental cost

Costs incurred to obtain customers' orders are known as _______ costs.

selling

Differential costs are also known as _______ costs.

incremental

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

False

True or false: Variable costs remain fixed in total within the relevant range of activity.

False

Which of the following are most likely fixed costs? I. Administrative salaries II. Factory insurance III. Factory rent IV. Electricity to operate factory machines

I. Administrative salaries II. Factory insurance III. Factory rent

Quality cost information reports: I. show managers if quality control costs are poorly distributed. II. help identify the financial cost of defects III. always identify lost sales from customer ill will. IV. give managers an idea of where to focus quality control efforts.

I. show managers if quality control costs are poorly distributed. II. help identify the financial cost of defects IV. give managers an idea of where to focus quality control efforts.

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

True

True or false: When using the high-low method, fixed costs are calculated after variable costs are determined.

True

Which of the following represents the format used to prepare a contribution income statement? a. Sales - Variable expenses = Contribution margin - Fixed expenses = Net income b. Sales - Cost of goods sold = Contribution margin - Fixed expenses = Net income c. Sales - Cost of goods sold = Gross margin - Selling and administrative expenses = Net income d. Sales - Fixed expenses = Contribution margin - Variable expenses = Net income

a. Sales - Variable expenses = Contribution margin - Fixed expenses = Net income

Maintenance and depreciation of test equipment are examples of _______ costs. a. appraisal b. internal failure c. prevention d. external failure

a. appraisal

A type of indirect cost incurred to benefit more than one cost object is a(n) _______ cost. a. common b. sunk c. opportunity d. prime

a. common

Differential costs, opportunity costs and sunk costs are all cost classifications used in: a. decision making b. account analysis c. financial statements d. predicting cost behavior

a. decision making

The difference in revenues between two alternatives is called: a. differential revenue b. differential cost c. marginal revenue d. net profit

a. differential revenue

Administrative costs include: a. executive compensation and public relation costs b. factory maintenance workers' wages and factory supervisors' salaries c. shipping costs and sales commissions d. sales commissions and factory supervisors' salaries

a. executive compensation and public relations

Variable costs vary _______ within the relevant range of activity. a. in total b. per unit

a. in total

Minor items such as nails and glue are usually considered to be: a. indirect materials b. selling costs c. direct materials d. administrative costs

a. indirect materials

Costs that result from identifying defects before products are shipped to customers and include the cost of scrap and rework are _______ costs. a. internal failure b. external failure c. appraisal

a. internal failure

Factory materials, such as cleaning supplies, that are not components of finished products are classified as: a. manufacturing overhead b. administrative costs c. period costs d. direct materials

a. manufacturing overhead

The revenue from selling one addional unit is called _______ revenue. a. marginal b. opportunity c. economic

a. marginal

Indirect materials include: a. nails, glue, and thread b. laptop computer keyboards c. factory rent and insurance d. factory manager's salary

a. nails glue, and thread

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

a. remain constant per unit and vary in total

When using account analysis, an account is classified as either fixed or variable based on: a. the analyst's prior knowledge of how the cost behaves b. scattergraphs c. the equation Y = a +bX d. engineering estimates of production methods

a. the analyst's prior knowledge of how the cost behaves

Period costs are always expensed on the income statement in the period in which: a. they are incurred b. the cash for the expense changes hands c. the related goods are sold

a. they are incurred

A non-profit organization is trying to determine the fixed and variable costs of providing meals. During the first six months of the year, the following meals were served and the following costs were incurred. January: - Meals = 1,500 - Costs = $5,200 February: - Meals = 1,700 - Costs = $5,700 March: - Meals = 1,200 - Costs = $4,100 April: - Meals = 1,100 - Costs = $4,200 May: - Meals = 1,150 - Costs = $4,250 June: - Meals = 1,650 - Costs = $5,550 The cost equation using the high-low method is: a. y = $1,450 + $2.50x b. y = $260 + $3.20x

a. y = $1,450 + $2.50x

Costs associated with the general management of an organization are called _______ costs.

administrative

Which of the following is not a category of quality costs? a. Prevention costs b. Direct costs c. Internal failure costs d. Appraisal costs

b. Direct costs

Indirect materials can be easily inexpensively traced to a specific product. a. True B. False

b. False

Which of the following is not a COST CLASSIFICATION associated with decision making? a. Sunk costs b. Indirect costs c. Differential costs d. Opportunity costs

b. Indirect costs

Which of the following is not a method used to estimate the fixed and variable portions of mixed costs? a. Scattergraph plot b. Relevant range analysis c. Engineering approach d. High-low method

b. Relevant range analysis

Which type of cost changes in total, in direct proportion to changes in activity level? a. Opportunity b. Variable c. Fixed d. Differential

b. Variable

The difference in costs between two alternatives is called a(n) _______ cost. a. common b. differential c. opportunity d. sunk

b. differential

A fixed cost remains fixed _______ within the relevant range of activity. a. per unit b. in total

b. in total

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called: a. the contribution approach b. least-squares regression c. high-low d. the engineering approach

b. least-squares regression

A cost that changes in direct proportion to changes in the activity level is a _______ cost. a. mixed b. variable c. fixed

b. variable

Direct labor and overhead costs incurred to change raw materials into finished products are known as _______ costs. a. prime b. opportunity c. conversion d. period

c. conversion

A laptop computer manufacturer would consider the computer's processor chip to be a(n) _______ cost. a. direct labor b. indirect material c. direct material d. manufacturing overhead

c. direct material

Preventing, detecting and dealing with defects causes _______ costs. a. sunk b. opportunity c. quality d. marginal

c. quality

Contribution margin is: a. all revenues minus all costs b. sales revenue minus cost of goods sold c. sales revenue minus variable costs d. sales revenue minus fixed costs

c. sales revenue minus variable costs

Sales revenue minus variable expenses equals _______ _______.

contribution margin

We Ship It, Inc. is considering changing its shipping methods, which they believe will attract new customers, The following information relates to the present and proposed methods. Present: - Revenues = $140,000 - Variable costs = $60,000 - Fixed costs = $20,000 Proposed: - Revenues = $190,000 - Variable costs = $70,000 - Fixed Costs = $25,000 Calculate the differential net income or loss from the proposal. a. $15,000 differential net income b. $50,000 differential net income c. $40,000 differential net income d. $35,000 differential net income

d. $35,000 differential net income

The variable cost per unit using the high-low method is calculated as: a. change in units (activity) divided by change in costs b. total cost minus total fixed cost c. y = a + bX d. change in cost divided by change in units (activity)

d. change in cost divided by change in units (activity)

Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as: a. period costs b. direct materials c. indirect labor d. manufacturing overhead

d. manufacturing overhead

The cost of producing one more unit is the _______ cost. a. opportunity b. differential c. sunk d. marginal

d. marginal

Materials that became an important component of the finished product and their cost can be easily and conveniently traced to the finished product are _______ materials.

direct

A cost that can be easily and conveniently traced to a specific cost object is a(n) _______ cost of the cost object, whereas costs that cannot be easily and conveniently traced to that specific cost object are _______ costs.

direct indirect

Inventoriable costs is another term for _______ costs.

product

High-low or least squares regression analysis should only be done if a(n) _______ plot depicts linear cost behavior.

scattergraph

Cost incurred to obtain customers' orders are know as _______ costs.

selling

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

traditional contribution

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

variable

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

variable

Which of the following are not internal failure costs? I. Rework labor and overhead II. Depreciation of test equipment III. Net cost of scrap IV. Product recalls

II. Depreciation of test equipment IV. Product recalls

When quality of conformance is low: I. total quality cost is low II. most of the quality cost is internal and external failure cost III. total quality cost is high IV. most of the quality cost is preventative and appraisal cost

II. most of the quality cost is internal and external failure cost III. total quality cost is high

Using the high-low method, the fixed cost is calculated: I. before the variable cost is calculated II. by adding the total cost to the variable cost III. after the variable cost per unit is calculated IV. using either the high or low level of activity

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

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

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

Cost behavior: I. is the relative proportion of each type of cost in an organization II. is a detailed analysis technique used to determine whether costs are fixed or variable III. categorizes costs as fixed, mixed and variable IV. refers to how a cost will change as activity level changes

III. categorizes costs as fixed, mixed and variable IV. refers to how a cost will change as activity level changes

In the equation Y = a + bX, Y is the: a. total mixed cost b. level of activity c. total fixed cost d. variable cost per unit of activity

a. total mixed cost

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

cost structure

Costs that are shared by multiple cost objects in a company are known as _______ costs. a. sunk b. marginal c. opportunity d. common

d. common

The financial statement that organizes costs by their behavior instead of by their function is the: a. statement of cash flows b. balance sheet c. traditional format income statement d. contribution format income statement

d. contribution formal income statement

In a least-squares regression line, the vertical intercept (a) of the line represents the total _______ cost.

fixed

The purpose of statistical process control is to identify processes that are _______ or _______ of control.

in out

Product costs flow through the inventory accounts until the goods are sold, at which time they become an expense in the cost of goods sold section on the _______ _______.

income statement

Small groups of employees that meet regularly to discuss ways to improve quality are referred to as _______ _______.

quality circles

Prevention, appraisal, internal failure and external failure costs incurred are detailed on a(n) _______ _______ report.

quality cost

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

raw

Cost assumptions are reasonably valid within the _______ _______ of activity.

relevant range

Which of the following statements are true? I. Within the relevant range of activity, fixed costs remain constant in total. II. The relevant range of activity is approximated by a straight line. III. Within the relevant range of activity total variable costs do not change.

I. Within the relevant range of activity, fixed costs remain constant in total. II. The relevant range of activity is approximated by a straight line.

Which of the following statements are true? I. Decreases in quality costs generally occur as soon as improvement programs are implemented. II. As managers become more experienced in balancing prevention and appraisal activities, the need for quality cost reports often increases. III. Measuring and reporting quality costs does not solve quality problems. IV. The impact of customer ill will is generally not found on quality control reports.

III. Measuring and reporting quality costs does not solve quality problems. IV. The impact of customer ill will is generally not found on quality control reports.

Which of the following statements are true? I. All costs in a merchandising company are period costs. II. Inventoriable costs are expensed in the period in which they are incurred. III. Period costs are expensed when incurred. IV. Product costs are also called inventoriable costs.

III. Period costs are expensed when incurred. IV. Product costs are also called inventoriable costs.

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

period inventoriable

Which of the following statements are true? I. A mixed cost has a minimum cost of having a service available and ready for use. II. The fixed portion of a mixed cost represents the cost incurred for the actual consumption of a service. III. When mixed costs are represented by a straight-line, the steeper the slope, the higher the variable cost per unit. IV. The equation for a straight-line makes it easy to calculate the total mixed cost for any activity level outside the relevant range.

I. A mixed cost has a minimum cost of having a service available and ready for use. III. When mixed costs are represented by a straight-line, the steeper the slope, the higher the variable cost per unit.

Which of the following are differences between the traditional and contribution format to income statements? I. Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier. II. The traditional income statement is for internal use, while the contribution format income statement is for external use. III. Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior.

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

Which of the following statements are true? I. Direct labor and indirect labor are product costs. II. Sales commissions and shipping costs are product costs. III. Factory cleaning and maintenance are period costs. IV. Advertising and sales commissions are period costs.

I. Direct labor and indirect labor are product costs. IV. Advertising and sales commissions are period costs.

Which of the following statements are true? I. Mixed costs contain both fixed and variable cost elements. II. The equation for a straight-line can be used to express the relationship between mixed costs and the level of activity. III. Management cannot use account analysis when trying to estimate the components of a mixed cost. IV. Mixed costs are also commonly known as step variable costs.

I. Mixed costs contain both fixed and variable cost elements. II. The equation for a straight-line can be used to express the relationship between mixed costs and the level of activity.

Which of the following statements are true? I. Period costs are expensed in the same period in which they are incurred. II. Sales commissions are period costs. III. The wages of assembly-line workers are period costs. IV. Period costs are included as part of the cost of goods.

I. Period costs are expensed in the same period in which they are incurred. II. Sales commissions are period costs.

A contribution format income statement: I. can assist with management decision making II. is prepared primarily for external reporting purposes III. reports both gross margin and net income IV. separates costs into their fixed and variable components

I. can assist with management decision making IV. separates costs into their fixed and variable components

Cost objects include: I. customers II. anything for which revenue data is desired III. anything for which cost data is desired IV. organizational subunits

I. customers III. anything for which cost data is desired IV. organizational subunits

Manufacturing costs include: I. direct materials II. manufacturing overhead III. direct labor IV. administrative costs V. selling costs

I. direct materials II. manufacturing overhead III. direct labor

Indirect labor costs include: I. factory security guard wages II. assembly-line worker wages III. assembly-line supervisor salary IV. administrative assistant salary

I. factory security guard wages III. assembly-line supervisor salary

The engineering cost approach: I. includes an analysis of what cost behavior should be II. is based on an engineer's evaluation of the production methods III. cannot be used when no past experience is available concerning activities and costs IV. classifies accounts as variable or fixed based on prior knowledge of how the cost behaves

I. includes an analysis of what cost behavior should be II. is based on an engineer's evaluation of the production methods

The high-low method: I. is based on periods where the activity tends to be unusual II. uses only two data points III. is difficult to apply and requires a statistical software package IV. generally provides an accurate estimate of true cost behavior during normal periods

I. is based on periods where the activity tends to be unusual II. uses only two data points

Cost objects: I. may be assigned costs to help control spending II. can be products, customers, or jobs III. are only assigned direct costs

I. may be assigned costs to help control spending II. can be products, customers, or jobs

Step-variable costs: I. may include total salaried employee expense II. are generally treated as fixed costs III. can be adjusted quickly as conditions change

I. may include total salaried employee expense III. can be adjusted quickly as conditions change

Typical prevention costs include: I. quality circles II. statistical process control III. depreciation of test equipment IV. debugging software errors

I. quality circles II. statistical process control

Committed fixed costs include: I. real estate taxes II. top management salaries III. research IV. public relations

I. real estate taxes II. top management salaries

Nonmanufacturing costs include: I. sales commissions II. insurance on plant equipment III. company president's salary IV. assembly-line worker wages

I. sales commissions III. company president's salary

Which of the following statements are true? I. A direct cost is sometimes referred to as a common cost. II. A direct cost can be easily and conveniently traced to a specific cost object. III. A particular cost is either direct or indirect, regardless of the cost object. IV. A regional sales manager's salary would be a direct cost of the regional office in which the sales manager works.

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

Which statements regarding the high-low method are true? I. It is superior to least-squares regression. II. It only uses two data points. III. The high-low method should only be used if a scattergraph plot indicates a linear relationship between cost and activity. IV. When applying this method, use the data points with the highest and lowest level of cost.

II. It only uses two data points. III. The high-low method should only be used if a scattergraph plot indicates a linear relationship between cost and activity.

Opportunity costs: I. are part of traditional accounting records II. are benefits that are given up when selecting one alternative over another III. should be considered in decision making IV. are uncommon in decision making

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

A dress manufacturer would consider the cost of relatively inexpensive items like thread to be part of: I. direct materials II. manufacturing overhead III. administrative costs IV. indirect materials

II. manufacturing overhead IV. indirect materials

Fixed costs: I. per unit become progressively larger as the level of activity increases II. remain constant in total regardless of changes in activity III. generally include rent and supervisor salaries IV. should not be expressed on a per unit basis when making decisions

II. remain constant in total regardless of changes in activity III. generally include rent and supervisor salaries IV. should not be expressed on a per unit basis when making decisions

Within a relevant range of activity, variable costs: I. vary per unit II. vary in total III. remain constant per unit IV. remain constant in total

II. vary in total III. remain constant per unit

Which of the following statements are true? I. When plotting a scattergraph, cost is the independent variable. II. Scattergraphs should be used after high-low or regression analysis is performed. III. Plotting data on a scattergraph is an important diagnostic step. IV. Scattergraphs are a way to diagnose cost behavior.

III. Plotting data on a scattergraph is an important diagnostic step. IV. Scattergraphs are a way to diagnose cost behavior.

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

Manufacturing overhead costs include: a. direct materials, sales commissions, and factory assembly workers' wages b. administrative taxes and insurance, sales commissions, and factory assembly workers' wages c. direct materials, administrative taxes and insurance, and sales commissions d. indirect materials, factory supervisors' salaries, and factory depreciation

d. indirect materials, factory supervisors' salaries, and factory depreciation

Fixed costs that can be cut-back or eliminated without significant damage to a company's long-term goals are _______ fixed costs and _______ fixed costs can not be easily changed or eliminated.

discretionary committed

When a company recalls a defective product, a(n) _______ _______ cost is incurred.

external failure

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

indirect

The components of prime costs are direct _______ costs and direct _______ costs.

materials labor

The level of activity within which variable and fixed cost assumptions are valid is known as the _______ _______.

relevant range