Managerial Accounting Chapter 2

Common cost

a type of indirect cost incurred to benefit more than one cost object.

Period costs are expensed when incurred.

True

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

cost structure

Cost objects include:

customers, organizational subunits, anything for which cost data is desired.

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

decision making

The difference in revenues between two alternatives is called:

differential revenue

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called:

least-squares regression

There are two broad classifications of costs:

manufacturing costs and nonmanufacturing costs.

Indirect materials and indirect labor are classified as:

manufacturing overhead

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

manufacturing overhead, indirect materials

Costs incurred to obtain customers' orders are known as

selling costs

The high-low method:

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

Marginal Cost

The cost of producing one more unit.

Relevant range

The level of activity within which variable and fixed cost assumptions are valid.

The financial statement that organizes costs by their behavior instead of by their function is the:

contribution format income statement

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

conversion costs.

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

fixed cost

Direct materials, direct labor, and manufacturing overhead are all

product costs

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

Discretionary, Committed

Which of the following are considered nonmanufacturing costs:

Company presidents salary, sales commissions.

Sunk Costs

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

Costs that can be easily and conveniently traced to a specific product are called:

Direct costs

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

Opportunity cost

Contribution Margin

Sales revenue minus variable costs.

A mixed cost has a minimum cost of having a service available and ready for use.

True

Non manufacturing costs are period costs.

True

Period costs are expensed in the same period in which they are incurred.

True

Presenting fixed costs on an average per unit basis can be misleading.

True

Product costs "attach" to units of product as they are purchased for resale or produced.

True

Product costs are also called inventoriable costs.

True

When mixed costs are represented by a straight-line, the steeper the slope, the higher the variable cost per unit.

True

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

True

Cost behavior is considered linear whenever:

a straight line approximates the relationship between cost and activity.

Differential cost is

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

The variable cost per unit using the high-low method is calculated as:

change in cost divided by change in activity.

When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity:

choose the periods with the highest and lowest level of activity and their associated costs.

In an automobile manufacturing plant, the assembly-line workers are considered to be ____________ ____________ costs.

direct labor

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

direct material cost

The components of prime costs are:

direct materials and direct labor

Manufacturing costs can be divided into three categories:

direct materials, direct labor, and manufacturing overhead.

A fixed cost remains fixed __________ within the relevant range of activity.

in total

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

Differential costs are also known as

incremental costs.

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

indirect cost

Examples of committed fixed costs:

investments in facilities and equipment, real estate taxes, insurance expenses, and salaries of top management.

The high-low method

is based on the rise-over-run formula for the slope of a straight line.

An activity base:

is sometimes called a cost driver, measures whatever causes costs to vary.

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

marginal revenue

Cost objects:

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

Variable costs vary _________ within the relevant range of activity.

per unit

Fixed Costs

remain constant in total with the relevant range of activity.

Within the relevant range of activity, variable costs:

remain constant per unit, vary in total.

Fixed and variable costs should only be computed if a(n) ______________ shows the relationship to be approximately linear.

scattergraph

A _______ income statement is prepared using a functional format, while a _________ format income statement makes a distinction between fixed and variable costs.

traditional, contribution

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

variable

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

variable

Variable Costs

vary in total, in direct proportion to changes in activity level.