ACCT 3030 Ch. 1

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

Which of the following are differences between the traditional and contribution format to income statements?

- 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.

Product costs ______.

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

Cost behavior ______.

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

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

Administrative salaries Factory rent Factory insurance

indirect costs

Costs that cannot be easily and conveniently traced to a unit of product or other cost object

Which of the following statements are true?

Sales commissions are period costs. Period costs are expensed when they are incurred.

Contribution Margin

The amount remaining from sales revenues after all variable expenses have been deducted.

The finished product of one company can become raw materials for another company. True or False

True

common cost

a cost that is incurred to support a number of cost objects but that cannot be traced to them individually

cost object

anything for which a cost measurement is desired

Cost objects include:

anything for which cost data is desired organizational subunits customers

Opportunity costs ______.

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

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

common

Sales revenue minus variable expenses equals

contribution margin

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

cost behavior

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

cost object

Direct Costs

costs that can be easily and accurately traced to a cost object

nonmanufacturing costs

costs that include selling and administrative costs

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

decision making

Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) ______ cost of the customer placing the order.

direct

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

direct labor cost

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

direct material

Materials that become an important component of the finished product whose cost can be easily and conveniently traced to the finished product are

direct materials

Manufacturing costs can be divided into three categories:

direct materials direct labor manufacturing overhead

Administrative costs include ______.

executive compensation and public relations costs

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

fixed

Within the relevant range of activity ______.

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

The difference in revenues between two alternatives is called ______.

incremental revenue, also called differential revenue

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

manufacturing overhead

Factory materials, such as cleaning supplies, that are not components of finished products are classified as ______.

manufacturing overhead

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

mixed

Indirect materials include ______.

nails, glue, and thread

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

opportunity cost

Relevant Range of Activity

pertains to fixed cost as well as variable costs

The materials that go into the final product are called

raw materials

cost structure

the relative proportion of each type of cost in an organization

An income statement focusing on product and period costs has been prepared using a(n) ________ format, while __________ format income statement makes a distinction between fixed and variable costs. (Enter only one word per blank).

traditional or GAAP , contribution

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

variable

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

variable

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.c

False

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

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

Differential costs are also known as

incremental, relevant, or decremental

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

indirect costs

Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs.

indirect labor cost

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 (manufacturing) , period

Direct materials, direct labor, and manufacturing overhead are all _______.

product costs

The assumption that cost behavior is strictly linear is reasonably valid within the

relevant range

Nonmanufacturing costs include ______.

sales commissions company president's salary