ACCT 2123 EXAM 1

product costs:

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

a company purchased a 12 month insurance policy on October 1 at a cost of $1200. On the December 31 annual financial statements:

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

indirect labor costs include :

- assembly-line supervisor salary -factory security guard wages

manufacturing overhead

- contains fixed costs -is an indirect cost -consists of many different types of costs

variable costs

- cost of goods sold for a merchandising company -direct materials -commissions

the contribution approach to constructing income statements:

- distinguishes between fixed and variable costs - aids in decision making

fixed costs:

- factory rent -administrative salaries -factory insurance

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

- indirect materials -manufacturing overhead

committed fixed costs include:

- real estate taxes -top management salaries

quality cost information reports:

- show managers if quality control costs are poorly distributed - help identify the financial cost of defects - give managers an idea of where to focus quality control efforts

typical prevention costs include:

- statistical process control -quality circles

quality control reports in graphic form:

-include pie charts and bar graphs - stack appraisal costs on top of prevention costs - help clarify trends in data

cost objects include

-organizational subunits -customers -anything for which cost data is desired

not internal failure costs:

-product recalls -depreciation of test equipment

a contribution approach income statement

-separates costs into their fixed and variable components and can assist with management decision making

a measure such as direct labor-hours or machine hours used tossing overhead costs to products and services is called a cost driver or a ________ _______.

allocation base

touch labor

another name for direct labor

the total cost of a job is calculated by adding the total of direct labor cost, direct materials cost and

applied manufacturing overhead cost

maintenance and depreciation of test equipment are examples of ________ costs.

appraisal

maintenance and depreciation of test equipment are examples of ____________ costs.

appraisal

the more effective a company's ____________ activities, n the greater the level of ___________ failure costs.

appraisal / internal

cost of goods sold formula

beginning inventory + purchases -ending inventory

costs that can not be easily changed or eliminated

committed fixed costs

sales revenue minus variable expenses equals

contribution margin

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

cost structure

direct costs

costs that can be easily and conveniently traced to a specific product

sunk costs

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

total conversion cost:

direct labor + variable manufacturing overhead + fixed manufacturing overhead

a laptop computer manufacturer would consider the computer's processor chip to be a ___________ cost.

direct material

prime cost formula

direct materials + direct labor

total variable manufacturing cost:

direct materials + direct labor + variable manufacturing overhead

the three main categories of manufacturing costs include

direct materials, direct labor, and manufacturing overhead

selling and administrative costs are __________ costs

direct or indirect

fixed costs that usually arise from annual spending decisions by management are ____________ fixed costs

discretionary

fixed costs that can be cut-back or eliminated without significant damage to a company's long-term goals are:

discretionary fixed costs

a predetermined overhead rate is calculated by dividing the _______ total manufacturing overhead by the _______ total amount of the allocation base.

estimated/estimated

administrative costs include

executive compensation and public relations costs

administrative costs

executive, organizational, and clerical costs

when a company recalls a defective product, an ________ _________ cost is incurred.

external failure

when a company recalls a defective product, an _________ __________ cost is incurred.

external failure

fixed costs

factory insurance administrative salaries factory rent

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

fixed

net income format

gross margin - total selling & admin expense

variable costs vary ________ within the relevant range of activity.

in total

the purpose of statistical process control is to identify processes that are ____________ or ___________ of control

in/ out

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

income statement

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

costs that result from identifying defects before product costs are shipped to customer and include the cost of scrap and rework are _____________ costs

internal failure

costs that result from identifying defects before products are shipped to customers and include the cost of scrap and rework are _________ costs.

internal failure

product costs are also called __________ costs

inventoriable

common activity bases include:

machine hours, units sold, and direct labor hours

factory materials, such as cleaning supplies, that are not components of finished products are classified as

manufacturing overhead

the cost of producing one more unit of a good

marginal cost

total period cost

marketing & selling expenses administrative expenses interest expenses

when it comes to quality of conformance, an economy car:

may have the same quality of conformance as a luxury car

costs incurred in an attempt to lower the number of products manufactured with defects are _______ costs.

prevention

costs incurred in an attempt to lower the number of products manufactured with defects are ________ costs.

prevention

Quality Costs

prevention costs, appraisal costs, internal failure costs, external failure costs

direct materials, direct labor, and manufacturing overhead are all ________ costs.

product

products that meet or exceed their expectations and are free from defects that mar or degrade their performance are said to have a high ______________.

quality of conformance

committed fixed costs include

real estate taxes and top management salaries

Cost assumptions are reasonably valid within ___________ ______________ of activity.

relevant range

contribution margin

sales revenue - variable costs

contribution margin is

sales revenue - variable costs

mixed costs are also commonly known as:

semi-variable costs

typical prevention costs include:

statistical process control quality circles

differential cost is:

the difference in cost between two alternatives and is also known as incremental cost

differential revenue

the difference in revenues between two alternatives

opportunity cost

the potential benefit that is given up when one alternative is selected over another

total fixed cost

the sum of those costs that are fixed in total - no matter how much is produced

in the equation y=a+bx, Y is the

total mixed cost

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

measuring and reporting quality costs does not solve quality problems

true

period costs are expenses in the same period in which they are incurred

true

sales commissions are period costs

true

Within the relevant range of activity, variable costs:

- vary in total, but remain constant per unit

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.

cost objects include:

-customers -organizational subunits -anything for which cost data is desired

costs incurred to identify defective products before they are shipped to customers are called _____________ or __________ costs.

appraisal and inspection

the more effective a company's ________ activities, the greater the level of _________ failure costs.

appraisal, internal

product cost:

direct materials + direct labor + variable manufacturing overhead +fixed manufacturing overhead

total product costs:

direct materials + direct labor + variable manufacturing overhead +fixed manufacturing overhead

the contribution approach to constructing income statements distinguishes between ___________ costs.

fixed and variable

the impact of customer ill will is generally not found on quality control reports

true

in the equation y= a+bX, b denotes the

variable cost per unit of activity and slope of the line