Smartbook chapter 1

A company purchased a 12 month insurance policy on October 1 at a cost of $1,200. On the December 31 annual financial statements:

$300 is reported as a expense and $900 is reported as an asset

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.

Differential cost is

also known as incremental costs the difference in cost between two alternatives

costs object include

anything for which cost data are desired customers organizational submits

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

behavior

cost behavior

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

nonmanufacturing costs include

company president's salary sales commissions

Sales revenue minus variable expenses equals

contribution margin

Differential costs, opportunity costs and sunk costs are all cost classifications used in: account analysis

decision making

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

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

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

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

direct labor

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

direct labor costs

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

direct material

Selling and administrative costs are _______ costs.

direct or indirect

Which of the following are most likely fixed costs?

factory insurance factory rent administrative salaries

indirect labor costs include

factory security guard wages assembly-line supervisor salary

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

false

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

fixed

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

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

indirect materials

Direct materials and direct labor are both ______ costs.

manufacturing

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

manufacturing overhead

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

matching principle

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

mixed

There are two broad classifications of costs: manufacturing costs and

nonmanufacturing costs

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

product

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

relevant change

selling costs include:

sales commissions advertisement sales salaries

Contribution margin is:

sales revenue minus variable costs

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

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

sunk

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

they are incurred

An income statement focusing on product and period costs has been prepared using a format, while a(n) format, while a(n)

traditional, contribution

A cost that changes in direct proportion to changes in the activity level is a ______ cost.

variable

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

variable

Which type of cost changes in total, in direct proportion to changes in activity level?

variable