Managerial Accounting - SmartBook Chapter 1

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

Sunk

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

behavior

Differential costs ____

can be fixed or variable

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

committed

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

conversion

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

conversion

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

cost structure

Within the relevant range of activity ____

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

Beginning merchandise inventory + Purchases - Ending merchandise inventory =

costs of goods sold

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

decision making

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

In an automobile manufacturing plant, the assembly-line workers are classified as ____________ ______________ cost

direct labor

Common activity bases include ____

direct labor hours, units sold, and machine hours

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

direct materials

Fixed costs that usually arise from annual spending decisions by management are called ____ fixed costs

discretionary

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

discretionary or managed and committed

Other names for manufacturing overhead include ______

factory overhead, indirect manufacturing costs, and factory burden

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

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

income statement

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

increase or decrease in discrete steps

The difference in costs between two alternatives is called a(n) ______ cost opportunity sunk incremental common

incremental

Manufacturing overhead costs include ______

indirect materials, factory supervisors' salaries, and factory depreciation

An activity base ____

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

Cost structure ____

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

Discretionary fixed costs include ____

management training programs and advertising

Direct materials and direct labor are both ______ costs

manufacturing

Factory burden is a synonym for ____ ____

manufacturing overhead

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

manufacturing overhead

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

manufacturing overhead and indirect materials

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

opportunity cost

Inventoriable costs is another term for ____ costs

product

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, period

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

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

total mixed cost

Direct labor is also called ______ labor.

touch

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

true

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

true

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

variable

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

variable

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

variable

Units that are partially complete are found in _____

work in process

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 Multiple choice question. $370,000 $140,000 $340,000 $260,000

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

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

False

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

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

Nonmanufacturing costs include ____

company president's salary and sales commission

Sales revenue minus variable expenses equals ____ ____

contribution margin

Prime costs include ______

direct materials and direct labor

Selling and administrative costs are ______ costs

direct or indirect

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

factory rent, factory insurance, and administrative salaries

Indirect labor costs include ______

factory security wages and assembly-line supervisor salary

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

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

material and labor

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 and categorizes costs as fixed, mixed and variable

Within the relevant range, fixed costs ____

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

Contribution margin is ____

sales revenue minus variable costs Reason: Fixed costs are deducted from contribution margin to get net income

Opportunity costs ____ should be considered in decision making are uncommon in decision making are benefits that are given up when selecting one alternative over another are part of traditional accounting records

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

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

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. Revenues - $140,000 (Present) $190,000 (Proposed)Variable costs - $60,000 (Present); $70,000 (Proposed)Fixed costs - $20,000 (Present); $25,000 (Proposed) Calculate the differential net income or loss from the proposal.The differential net income from the proposal is ______. Multiple Choice Question $15,000 $50,000 $40,000 $35,000

$35,000 Reason: A differential cost analysis considers the change in revenues ($50,000) and subtracts the change in both variable ($10,000) and fixed ($5,000) costs.

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? Period costs do not flow through the inventory accounts. All costs in a merchandising company are period costs. Period costs are expensed when incurred. Inventoriable costs are expensed in the period in which they are incurred

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

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. 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. Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier.

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

false

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

fixed

Because the variable cost per unit equals the slope of the straight line, the steeper the slope, the ______ (higher/lower) the variable cost per unit

higher

A fixed cost remains fixed ______ within the relevant range of activity

in total

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 Differential costs Sunk costs Opportunity costs

indirect costs

Indirect materials and indirect labor are classified as ______

manufacturing overhead

Manufacturing costs include _____

manufacturing overhead, direct materials, and direct labor

The cost of producing one more unit is the ____ cost

marginal

The revenue from selling one additional unit is called ______ revenue

marginal

Step-variable costs _____ may include total salaried employee expense can be adjusted quickly as conditions change are generally treated as fixed costs

may include total salaried employee expense and can be adjusted quickly as conditions change

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

mixed

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

mixed

Indirect materials include ______

nails, glue, and thread

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

raw materials, work in process, and finished goods

Committed fixed costs include ______ real estate taxes public relations research top management salaries

real estate taxes and top management salaries

Cost behavior patterns such as salaried employees are often called ____ ____ costs

step variable

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

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 and contribution