ACC 2020 Chapter 2

45.) A change in revenues between two alternatives is known as _________ revenue or incremental revenue.

differential

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

direct labor

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

True

34.) Any item for which cost data is desired is called a(n) ____________

cost object

50.) Marginal cost is:

the cost incurred to produce one more unit of a product

11.) A cost that changes in direct proportion to changes in the activity level is a _______ cost.

variable

68.) The slope of the regression line represents the ____________ cost per unit of activity.

variable

70.) Differential costs are also known as ______ costs.

incremental

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

1. manufacturing overhead 2. indirect materials

41.) Contribution margin is:

Sales revenue minus variable costs

73.) Cost behavior is considered linear whenever:

a straight line approximates the relationship between cost and activity

78.) Based on the following information, compute the cost of goods sold for Spengler Merchandising Corporation. Sales - $400,000 Purchases - $300,00 Beginning inventory - $50,000 Ending inventory - $90,000 Selling expenses - $70,000 Administrative expenses $30,000 Accounts receivable - $110,000 a) $260,000 b) $340,000 c) $370,000 d) $140,000

a) $260,000 (50,000+300,000-90,000)

28.) Which statements regarding the high-low method are true (check all that apply)? a) The high-low method should be used if a scattergraph plot indicates a linear relationship between cost and activity. b) It only uses two data points c) It is a better method than least-squares regression. d) When applying this method, use the data points with the highest and lowest level of cost.

a) The high-low method should be used if a scattergraph plot indicates a linear relationship between cost and activity. b) It only uses two data points * When applying this method, use the data points with the highest and lowest level of activity, not cost.

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 a) $160,000 b) $190,000 c) $80,000 d) $50,000

c) $80,000

15.) Given the following information, calculate total conversion cost: Direct Materials $58,000 Direct Labor $40,000 Manufacturing Overhead $27,000 Selling Expenses $19,000 Administrative Expenses $50,000

Direct Labor + Manufacturing Overhead = $67,000

36.) Given the following information, calculate total prime cost: Direct Materials $58,000 Direct Labor $40,000 Manufacturing Overhead $27,000 Selling Expenses $19,000 Administrative Expenses $50,000

Direct Materials + Direct Labor = $98,000

13.) Variable costs __________.

remain constant per unit and vary in total

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

scattergraph

39.) True or False: A particular cost may be direct or indirect depending on the cost object

True

55.) Managers use cost _____________ to predict costs will change as the level of activity changes

behavior

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

direct

16.) Indirect materials and indirect labor are classified as __________.

manufacturing overhead

6.) Which of the following are most likely fixed costs? (Check all that apply) 1. Administrative Salaries 2. Factory rent 3. Factory insurance 4. Electricity to operate factory machines

1. Administrative Salaries 2. Factory rent 3. Factory insurance

38.) Selling costs include:

Sales Salaries, Advertising, Sales Commissions

63.) The high-low method (check all that apply): a) is difficult to apply and requires a statistical software package b) generally provides an accurate estimate of true cost behavior during normal periods c) is based on periods where the activity tends to be unusual d) uses only two data points

c) is based on periods where the activity tends to be unusual d) uses only two data points

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. a) $50,000 differential net income b) $40,000 differential net income c) $15,000 differential net income d) $35,000 differential net income

d) 35,000 differential net income (50,000-10,000-5,000)

53.) A contribution format income statement:

- can assists with management decision making - seperates costs into their fixed and variable components

77.) Step-variable costs:

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

58.) Common activity bases include:

Units sold, Direct Labor Hours, Machine Hours

59.) In the equation Y = a + bX, Y=

total mixed costs

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

direct material cost

40.) Within the relevant range, ___________ costs remain constant on a per unit basis.

variable

75.) R^2:

- is usually provided by least-squares regression software - measures goodness of fit

51.) In the equation Y = a + bX, b denotes the: - slope of the line - level of activity - fixed cost per unit of activity - variable cost per unit of activity

- slope of the line - variable cost per unit of activity

24.) True or False: All raw materials are direct materials.

False (Raw materials may include both direct and indirect materials)

33.) Within the relevant range of activity, _________ costs remain constant in total.

fixed

60.) Discretionary fixed costs include:

management training programs and advertising

31.) Cost assumptions are reasonably valid within the ________________ of activity.

relevant range

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

indirect materials

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

marginal

54.) Which of the following statements are true? (Check all that apply) - 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 - Period costs are included as part of the cost of goods

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

69.) Which of the following statements are true? (Check all that apply) -Period costs are expensed when incurred - Product costs are also called inventoriable costs -Inventoriable costs are expensed in the period in which they are incurred - All costs in a merchandising company are period costs

-Period costs are expensed when incurred - Product costs are also called inventoriable costs

57.) Which of the following is not a COST CLASSIFICATION associated with decision making?

indirect costs

32.) Manufacturing overhead costs include ____________.

indirect materials, factory supervisors' salaries, and factory depreciation

19.) Manufacturing costs can be divided into three categories: direct _________, direct ___________ and manufacturing ___________.

materials, labor and overhead

22.) The difference in cost between two alternatives is called a(n) ____________ cost.

differential

67.) Prime costs are: (select all that apply): a) direct labor b) selling and administrative expenses c) direct materials d) manufacturing overhead

a) direct labor c) direct materials

21.) How individual costs react to changes in activity level is referred to as cost ___________.

behavior

3.) Which of the following statements are true? (Check all that apply) a) A direct cost is sometimes referred to as a common cost. b) A particular cost is either direct or indirect, regardless of the cost object. c) A direct cost can be easily and conveniently traced to a specific cost object. d) A regional sales manager's salary would be a direct cost of the regional office in the sales manager works.

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

66.) When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity: a) skip that period and move to the next highest or lowest level where costs and activity match. b) choose the periods with the highest and lowest level of cost and their associated activities. c) choose the periods with the highest and lowest level of activity and their associated costs.

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

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

d) least-squares regression

74.) Fixed costs that usually arise from annual spending decisions by management are ____________ fixed costs.

discretionary

61.) When preparing a scattergraph, x is plotted on the __________ axis. Activity is the ____________ variable because the amount of cost incurred during a period depends on the level of activity for the period.

horizontal; independent

4.) Variable costs vary _________ within the relevant range of activity.

in total

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

opportunity cost

62.) The materials that go into the final product are called ______________ materials.

raw

71.) Committed fixed costs include:

real estate taxes, top management salaries

44.) 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

56.) 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

37.) When activity level changes, an ___________ cost changes in direct proportion to the changes

variable

17.) Which of the following statements are true? (Check all that apply) - Within the relevant range of activity total variable costs do not change - Within the relevant range of activity, fixed costs remain constant in total - The relevant range of activity is approximated by a straight line

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

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

non-manufacturing

12.) Manufacturing costs include __________.(Check all that apply.) a) direct materials b) selling costs c) administrative costs d) direct labor e) manufacturing overhead

a) direct materials d) direct labor e) manufacturing overhead

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

d) conversion

23.) Which of the following are differences between the traditional and contribution format income statements? (check all that apply)? a) Compared to traditional statements, contribution approach statements provide management with a tool to make decision making easier. b) Traditional income statements focus on cost function. Contribution approach statements focus on cost behavior. c) The traditional income statement is for internal use, while the contribution approach income statement is for external use.

a) Compared to traditional statements, contribution approach statements provide management with a tool to make decision making easier. b) Traditional income statements focus on cost function. Contribution approach statements focus on cost behavior.

42.) The engineering cost approach:(check all that apply): a) includes an analysis of what cost behavior should be b) classifies accounts as variable or fixed based on prior knowledge of how the cost behaves c) cannot be used when no past experience is available concerning activities and costs d) is based on an engineer's evaluation of the production methods

a) includes an analysis of what cost behavior should be d) is based on an engineer's evaluation of the production methods

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

False (Direct labor costs)

30.) Which of the following statements are true (check all that apply)? a) The equation for a straight-line can be used to express the relationship between mixed costs and the level of activity. b) Mixed costs contain both fixed and variable cost elements. c) Management cannot use account analysis when trying to estimate the components of a mixed cost.

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

7.) Sales revenue minus variable expenses equals _______________.

contribution margin

52.) A type of indirect cost incurred to benefit more than one cost object is a(n) __________ cost.

common

9.) Cost objects include: (Check all that apply) a) anything for which revenue data is desired b) organizational subunits c) anything for which cost data is desired d) customers

b) organizational subunits c) anything for which cost data is desired d) customers

20.) An activity base: (check all that apply): a) is part of the organization where major operations are planned and carried out b) is a measure of whatever causes fixed costs to occur c) measures whatever causes costs to vary d) is sometimes called a cost driver

c) measures whatever causes costs to vary d) is sometimes called a cost driver

2.) 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

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

indirect

1.) Direct materials, direct labor, and manufacturing overhead are all ___________ costs.

product

64.) True or False: Presenting fixed costs on an average per unit basis can be misleading.

True

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

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

18.) Product costs are also called ___________ costs.

inventoriable

48.) When using the high low method, the change in cost divided by the change in units is

the variable cost per unit

29.) When preparing a scattergraph, Y is plotted on the __________ axis. Cost is the ____________ variable because the amount of cost incurred during a period depends on the level of activity for the period.

vertical; dependent