A202 Chapter 2
________ costs should not be expressed on a per unit basis when making decisions, remain constant in total regardless of changes in activity, and generally include rent and supervisor salaries.
Fixed
Net income equals
Gross Margin - Total Selling & Admin. Expenses
Advertising costs.
Period cost
Cost of leasing the corporate jet used by the company's executives.
Period cost
Depreciation on salespersons' cars.
Period cost
Materials used for boxing products for shipment overseas. (Units are not normally boxed.)
Period cost
Salaries of personnel who work in the finished goods warehouse.
Period cost
The cost of renting rooms at a Florida resort for the annual sales conference.
Period cost
The wages of the receptionist in the administrative offices.
Period cost
Depreciation on chairs and tables in the factory lunchroom.
Product cost
Factory supervisors' salaries.
Product cost
Heat, water, and power consumed in the factory.
Product cost
Lubricants used for machine maintenance.
Product cost
Rent on equipment used in the factory.
Product cost
Soap and paper towels used by factory workers at the end of a shift.
Product cost
The cost of packaging the company's product.
Product cost
Workers' compensation insurance for factory employees.
Product cost
Contribution approach statements provide management with a tool to make decision making easier, focus on cost behavior
Traditional approach statements focus on cost function
A mixed cost has
a minimum cost of having a service available and ready for use
Opportunity cost
a potential benefit that is lost or forfeited when one decision is chosen over another
The relevant range of activity is approximated by
a straight line
Manufacturing costs can be divided into 3 categories.
direct materials, direct labor, manufacturing overhead
Within the ____ ____ of activity, cost assumptions are reasonably valid.
relevant range
Variable costs
remain constant per unit and vary in total
Examples of non-manufacturing costs
sales commissions, company president's salary
Contribution revenue is
sales revenue minus variable costs
Mixed costs are also known as
semi-variable costs
The type of cost that should NEVER be used when making decisions is
sunk cost
When using account analysis, an account is classified as either fixed or variable based on
the analyst's prior knowledge of how the cost behaves
Marginal cost is
the cost incurred to produce one more unit of a product
When mixed costs are represented by a straight line, the steeper the slope,
the higher the variable cost per unit
The level of activity within which variable and fixed cost assumptions are valid is known as
the relevant range
When using the high low method, the change in cost divided by the change in units is
the variable cost per unit
Using the high-low method, the fixed cost is calculated
using either the high or low end of activity, after the variable cost is calculated
Costs associated with the general management of an organization are called
administrative costs
Selling costs include
advertising costs, sales salaries, sales commissions
Differential cost is
also known as incremental cost, the difference in cost between two alternatives
Scattergraphs
are a great way to diagnose cost behavior, plotting data on a ____ is an important diagnostic step
Committed fixed costs
are not easily changed or eliminated
Step-variable costs
can be changed quickly as conditions change
Discretionary fixed costs
can be cut-back or eliminated without significant change to a company's long-term goals
The formula used to calculate the variable cost per unit using the high-low method is
change in cost divided by change in activity
Within the relevant range of activity, fixed costs remain
constant in total
The financial statement that organizes costs by their behavior rather than their function is called
contribution format income statement
Sales revenue minus variable expenses is
contribution margin
Direct labor and overhead costs incurred to changed raw materials into finished products are known as
conversion costs
Any item for which cost data is desired is called a(n)
cost object
Selling costs are
costs incurred to obtain customers' orders
Direct labor and indirect labor are
product costs
The difference in revenue between two alternatives is known as
differential revenue
A change in revenue between two alternatives is known as
differential revenue or incremental revenue
Examples of common activity bases
direct labor hours, machine hours, number of purchase orders
Manufacturing costs include
direct labor, indirect labor, and direct materials
Direct materials, direct labor, and manufacturing overhead are all
product costs
In a least-squares regression line, the vertical intercept represents the
fixed cost
Cost behavior refers to
how individual costs change as the level of activity level increases or decreases
The high-low method
is based on periods where the activity tends to be unusual, uses only two data points
The revenue obtained from selling one additional unit of product is called
marginal revenue
An activity base
measures whatever causes costs to vary, is sometimes called a cost driver
Advertising and sales commissions are
period costs
