ACCT230 CHAPTER 1 Specific Questions

What are Period Costs?

Period costs are costs for activities other than production of the product. Operating Expenses (NONMANUFACTURING COSTS or SELLING AND ADMINISTRATIVE COSTS)

Glue and sandpaper required in production deals with what cost?

Manufacturing Overhead Cost (OH)

Rent paid on administrative headquarters deals with what cost?

Period Cost (P)

What is the definition of Indirect Labor?

Indirect Labor is factory labor that is difficult to trace to each unit so it is included as part of manufacturing overhead.

What is the definition of Indirect Material?

Indirect Materials are materials that are relatively insignificant to the product--not worth tracing to each unit so are treated as part of manufacturing overhead.

In a small manufacturing facility, one welder is needed for every 200 hours of machine-hours or fewer in a month. The welder is paid a monthly salary of $2,500. If the total monthly requirement is 1,300 machine-hours, the total salaried employee expense is ________. - $12,500 - $16,250 - $17,500 - $15,000

- $17,500

Audio Corporation purchased $20,000 of DVDs during the current year. The company had DVD inventory of $15,000 at the beginning of the year. An end of the year audit revealed that the company had DVD inventory of $10,000. The amount that would be reported as cost of goods sold in the income statement for the current year is ________. - $25,000 - $15,000 - $10,000 - $20,000

- $25,000

Davidson Company has sales of $100,000, the variable cost of goods sold of $40,000, variable selling expenses of $15,000, variable administrative expenses of $5,000, fixed selling expenses of $7,000, and fixed administrative expenses of $9,000. What is Davidson's contribution margin? - $284,000 - $45,000 - $40,000 - $8,000

- $40,000

Cyber Devices manufactures PCTV products that enable people to watch television content on their computers. It sells its product to retailers for $50. A tuner component that goes into each of these devices costs $5 to acquire. The total variable cost at an activity level of 1,000 units equals ________. - $50,000 - $10,000 - $0 - $5,000

- $5,000

Manufacturing costs include all of the following categories except ________. - Administrative costs - Direct labor - Direct materials - Manufacturing overhead

- Administrative Costs

The traditional income statement uses which of the following cost categories? - Variable expenses and fixed expenses. - Cost of goods sold and fixed expenses. - Operating expenses and selling and administrative expenses. - Cost of goods sold and selling and administrative expenses.

- Cost of goods sold and selling and administrative expenses.

________ is sometimes called "touch labor." - Direct labor - Indirect labor - Overhead labor

- Direct Labor

What are the 3 categories of PRODUCT COST for manufacturing companies?

- Direct Material - Direct Labor - Manufacturing Overhead

Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product are called ________. - Raw materials - Direct materials - Indirect materials

- Direct Materials

Which of the following is common to both prime cost and conversion cost? - Manufacturing overhead - Direct materials - Nonmanufacturing costs - Direct labor

- Direct labor

1. Adventure Holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a(n) _________ of selling a tour package. 2. A ___________ is a cost that is incurred to support a number of cost objects but cannot be traced to them individually. 3. Adventure Holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a(n) _________ of the branch.

- Indirect Cost - Common Cost - Direct Cost

Which of the following is true of the contribution approach? - It is mainly used for external reporting purposes. - It separates costs into fixed and variable categories. - It is not useful for merchandising companies. - It calculates gross margin by deducting the cost of goods sold from sales.

- It separates costs into fixed and variable categories.

Items such as indirect materials, indirect labor, maintenance and repairs on production equipment, depreciation, and insurance on manufacturing facilities are included in ________. - Nonmanufacturing costs - Manufacturing overhead costs - Direct costs

- Manufacturing overhead costs

The ________ requires that the costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized. - Materiality concept - Consistency concept - Matching principle - Going concern assumption

- Matching principle

Property taxes associated with a company's administrative facility are considered ________. - Nonmanufacturing costs - Manufacturing overhead costs - Selling costs

- Nonmanufacturing costs

How should the wages of a sheet metal worker in a fabrication plant be classified? - Product cost - Period cost - Nonmanufacturing cost - Administrative cost

- Product cost

A fixed cost is a cost which ________. - Varies in total with changes in the level of activity - Remains constant per unit with changes in the level of activity - Varies inversely in total with changes in the level of activity - Remains constant in total with changes in the level of activity

- Remains constant in total with changes in the level of activity

If a firm increases its activity level, ________. - Costs will remain the same -All costs will rise - Some costs will change, other costs will remain the same

- Some costs will change, other costs will remain the same

In the equation, Y = a + bX, X represents ________. - The total mixed cost - The level of activity - The total fixed cost - The variable cost per unit of activity

- The level of activity

What is the definition of Variable Cost? (VC)

A cost that varies, in total, directly and proportionally to changed in the level of activity. Ex. # of Guests -250 Meal Cost/Per Guest -20/Per Guest Total Meal Cost 5000 (Therefore, variable cost is deals with multiplication)

What is the definition of Mixed Costs?

A cost that contains both variable and fixed elements (also called "Semi-Variable Costs")

What is the definition of Fixed Cost? (FC)

A cost that remains constant, in total, regardless of changes in the level of the activity. Ex. # of Guests - 250 Total Rental Cost - 500 Average Cost/Unit - 2.00/Guest (Therefore, variable cost is dealing with division)

What is the rule of the thumb?

A direct cost is CAUSED by the cost object. Example: Customer Order - Sales Commission Paid - Direct Material Used

To determine if a cost is indirect or direct, you...?

MUST identify the cost object first.

What is the definition of Indirect Cost (Common Costs)?

Costs that CANNOT be easily and conveniently traced to a specified cost object. Example: Indirect to a product line. - Rent for space that house four departments - The CEO's salary - Service Department costs such as HR (Human Resources), Accounting, Legal, IT, etc.

What is the definition of Direct Cost?

Costs that can be easily and conveniently traced to a specified cost object.

What do we need to know about regarding Conversion Costs?

DL + OHbb

What do we need to know about regarding Prime Costs?

DM + DL

Wages paid to carpenters deals with what cost?

Direct Labor Cost (DL)

What is the definition of Direct Labor Costs?

Direct Labor Costs that can be easily traced to individual units of a product ("Touch Labor"). Example: Sewing Machine Operator for a T-Shirt Manufacturer

Lumber used in production deals with what cost?

Direct Materials Cost (DM)

What does Manufacturing Overhead include?

It Includes Indirect Material and Indirect Labor.

What is the definition of Manufacturing Overhead (OH)?

It includes ALL manufacturing COSTS except direct materials and direct labor. These costs CANNOT be easily traced to specific units produced

What is the definition of Selling Costs?

It includes all costs necessary to secure customer orders and get the finished product into the hands of the customer. Example: Sales Salaries and commissions, travel expenses, delivery to customers.

What is the definition of Product Cost?

It includes all costs required to purchase or manufacture inventories. - For Retailer: Includes cost of purchasing inventory - For Manufacturer: Includes all costs required to manufacture inventories

What is the definition of Administrative Costs?

It includes all executive, organizational, and clerical costs associated with the general management of an organization. Example: Administrative salaries, clerical wages, etc.

What is the definition of a Cost Object?

It is anything for which cost data are desired including products, customers, jobs, organization subunits, etc.

What is the definition of Direct Material?

It is raw material that becomes an integral part of the finished product and whose costs CAN be conveniently traced to it (natural resources or parts purchased from another company).

Insurance on building used to house the manufacturing plant deals with what cost?

Manufacturing overhead cost (OH)

Depreciation on computers used by sales office clerks deals with what cost?

Period Cost (P)

Total Cost Formula is...?

[VC/Unit of activity*activity] + Total FC