ACG Chapter 1
Which of the following are sometimes called inspection costs
appraisal costs
Which of the following statements are true
-a regional sales manager's salary would be a direct cost if the regional office in which the sales manager works -a direct cost can be easily and conveniently traced to a specific cost object
Selling costs include
-advertising -sales commissions -sales salaries
A contribution approach income statement:
-can assist with management decision making -separate costs into their fixed and variable components
cost behavior
-categorizes costs as fixed, mixed and variable -refers to how a cost will change as activity level changes
other names for manufacturing overhead include
-factory overhead -factory burden -indirect manufacturing overhead
an activity base
-is sometimes called a cost driver -measures whatever causes costs to vary
Step variable costs
-may include total salaried employee expense -can be adjusted quickly as conditions change
Cost objects include ____
-organizational subunits -customers -anything for which cost data is desired
Which of the following statements are true
-period costs are expensed in the same period in which they are incurred -sales commissions are period costs
Within the relevant range of activity, variable costs
-remain constant per unit -vary in total
A factory supervisor's wages are classified as
Indirect labor- Yes; Fixed manufacturing overhead- Yes
Common activity bases include
machine hours direct labor hours units sold
DM $82,000 DL $51,000 VMOH $32,000 FMOH $30,000 V selling $16,000 F selling $15,000 V admin $9,000 F admin $18,000 Total conversion cost for the month was
$113,000 DL+VMOH+FMOH
DM $76,000 DL $40,000 VMOH $25,000 FMOH $30,000 V selling $12,000 F selling $15,000 V admin $6,000 F admin $18,000 total prime cost for the month is
$116,000 DM+DL
DM $7.10 DL $3.95 VMOH $1.75 FMOH $105,300 Sales commissions $1.00 Var admin $.50 Fix selling and admin $36,450 The incremental manufacturing cost that the company will incur if it increases production from 9,000 to 9,001 units is closest to (assume that the increase is within the relevant range)
$12.80 DM $7.10 + DL $3.95 + VMOH $1.75= incremental manufacturing cost $12.80
DM $76,000 DL $40,000 VMOH $25,000 FMOH $30,000 V selling $12,000 F selling $15,000 V admin $6,000 F admin $18,000 Total variable manufacturing cost for the month is
$141,000 DM+DM+VMOH
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 ________.
$17,500 The company would need 7 welders (7 x $2,500 = $17,500) to complete the work. the relevant range is 1,201 to 1,400 machine hours
DM $82,000 DL $51,000 VMOH $32,000 FMOH $30,000 V selling $16,000 F selling $15,000 V admin $9,000 F admin $18,000 total product cost for the month of September was
$195,000 DM + DL + VMOH +FMOH
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 Cost of goods sold= beginning merch inventory + purchases - ending merch inventory COGS= $15,000 + $20,000 - $10,000= $25,000
Based on the following information, compute the cost of goods sold for Spengler Merchandising Corporation. Sales $400,000 Purchases $300,000 Beginning inventory $50,000 Ending inventory $90,000 Selling expenses $70,000 Administrative expenses $30,000 Accounts receivable $110,000
$260,000 Beg inv + purch - end inv
A company purchased a 12 month insurance policy on October 1st at a cost of $1,200. On the December 31st annual financial statements
$300 is reported as an expense and $900 is reported as an asset
Present: Revenue $140,000 VC $60,000 FC $20,000 Proposed: revenue $190,000 VC $70,000 FC $25,000 Calculate the differential net income or loss from the proposal
$35,000 differential net income
Davidson Company has sales of $100,000, 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?
$40,000 Sales- variable expenses= CM $100,000- variable cost of goods sold of $40,000- variable selling expenses of $15,000 - variable admin expense of $5,000
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 ________.
$5,000 total variable cost= $5 x 1,000= $5,000
DM $76,000 DL $40,000 VMOH $25,000 FMOH $30,000 V selling $12,000 F selling $15,000 V admin $6,000 F admin $18,000 Total period cost for the month of July was
$51,000 (all selling and admin expenses)
DM $5.20 DL $3.75 VMOH $1.65 FMOH $2.60 Fix selling $.50 Fix admin $.40 Sales commission $1.50 V admin $.50 If 6,000 units are produced, the total amount of direct manufacturing cost incurred is closest to
$53,700 DM $5.20 + DL $3.75= Direct Manuf cost per unit of $8.95 $8.95 x 6,000= $53,700 total direct manufacturing cost
DM $76,000 DL $40,000 VMOH $25,000 FMOH $30,000 V selling $12,000 F selling $15,000 V admin $6,000 F admin $18,000 Total fixed costs for the month is
$63,000 FMOH+ fixed selling + fixed admin
A dress manufacturer would consider the cost of relatively inexpensive items like thread to be a part of ___
- manufacturing overhead -indirect materials
Within the relevant range, fixed costs:
-should not be expressed on a per unit basis when making decisions -generally include rent and supervisor salaries -remain constant in total regardless of changes in activity
Differential costs is
-the difference in cost between two alternatives -also known as incremental cost
Which of the following are differences between the traditional and contribution format to income statements
-traditional income statements focus on cost classifications. Contribution format income statements focus on cost behavior -compared to traditional statements, contribution format statements provide management with a tool to make decision making easier
sales revenue minus variable expenses equals
CM
The cost of electricity for running production equipment is classified as: A) Conversion- yes; period cost- no B) conversion- yes; period cost-yes C)conversion- no; period- yes D) Conversion- no; Period cost- no
Choice A (conversion yes; period cost no)
conversion cost
DL + MOH
Prime cost
DM + DL
Variable manufacturing cost
DM + DL + VMOH
Total fixed cost
FMOH + fixed selling expense + fixed admin expense
A report that details prevention, appraisal, internal failure, and external failure costs is called a
Quality cost report
Which statement is not correct
a company can reduce its total quality cost by focusing less of its efforts on prevention and appraisal
Manufacturing costs include all of the following categories except
administrative costs
Which of the following statements about opportunity cost is not correct
an opportunity cost cannot be changed by any decision make now or in the future
Fixed costs that cannot be easily changed and often lock a company into a multi-year decisions are ____ fixed costs
committed
costs that are shared by multiple cost objects in a company are known as ___ costs
common
A ___ is a cost that is incurred to support a number of cost objects but cannot be traced to them directly
common cost
Direct labor and overhead costs incurred to change raw materials into finished products are known as ____ costs
conversion
The traditional income statement uses which of the following cost categories?
cost of goods sold and selling and administrative expenses
The relative proportion of each type of cost in an organization is known as the company's ____ ____
cost structure
Differential costs, opportunity costs and sunk costs are all cost classifications used in
decision making
A change in revenues between two alternatives is known as ___ revenue or incremental revenue
differential
Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) _______ cost of the customer placing the order.
direct
Adventure holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a ____ of the branch
direct cost
Which of the following is common to both prime cost and conversion cost
direct labor
___ is sometimes called "touch labor"
direct labor
A laptop computer manufacturer would consider the computer's processor chip to be a ___ cost
direct material
materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product are called
direct materials
Prime costs consists of
direct materials and direct labor
A cost that can be easily and conveniently traced to a specific cost object is a _____ cost of that cost object, whereas costs that cannot be easily and conveniently traced to that specific cost object are _____ costs
direct or prime indirect or common
Fixed costs that usually arise from annual spending decisions by management are _____ fixed costs
discretionary
Indirect labor costs include
factory security guard wages, assembly-line supervisor salary
True or false: removing expenses that do not differ between alternatives could alter a decision
false
True or false: variable costs remain fixed in total within the relevant range of activity
false
true or false: all of a company's depreciation, property taxes and insurance premiums are considered manufacturing overhead
false
true or false: labor costs that can be specifically traced to a product are indirect labor costs
false
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
gross margin of $140,000- total selling and admin of $60,000= $80,000
Which of the following is not a benefit of a quality cost report
helps managers see the lost sales arising from customer ill will ** it does... - help managers see the financial significance of defects - identify the relative importance of quality problems faced by their company -helps managers see the distribution of their quality costs
A fixed costs remains fixed ___ within the relevant range of activity
in total
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
Salaries of factory supervisors and factory maintenance personnel are examples of _____ labor costs
indirect
Adventure holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a ____ of selling a tour package
indirect cost
Minor items such as nails and glue are usually considered to be
indirect materials
Manufacturing overhead costs include
indirect materials, factory supervisors' salaries, and factory depreciation
Which of the following is true of the contribution approach?
it separates costs into fixed and variable categories
Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as:
manufacturing overhead
items such as indirect materials, indirect labor, maintenance and repairs on production equipment, depreciation, and insurance on manufacturing facilities are included in ___
manufacturing overhead costs
The revenue from selling one additional unit is called ____ revenue
marginal
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
matching principle
Which of the following is an example of an internal failure cost?
net cost of scrap
there are two broad classifications of costs: manufacturing costs and ___ costs
non manufacturing
Property taxes associated with a company's administrative facility are considered ____
non manufacturing costs
A potential benefit that is forfeited or lost when one decision is chosen over another is called an
opportunity cost
which of the following costs supports activities whose purpose is to reduce the number of defects?
prevention costs
How should the wages of a sheet metal worker in a fabrication plant be classified?
product cost
Which of the following is an example of an external failure cost?
product recalls
Which of the following is a measure of whether or not a delivered product meets its design specifications?
quality of conformance
the materials that go into a final product are called ____ materials
raw
Prior to being recorded on the income statement, manufacturers' product costs flow through
raw materials work in process finished goods
Differential costs are always
relevant in making business decisions
cost assumptions are reasonably valid within the ___ ___ of activity
relevant range
A fixed cost is a cost which
remains constant in total with changes in the level of activity
nonmanufacturing costs include
sales commissions, company president's salary
period cost
selling expense + admin expense
If a firm increases its activity level, ___
some costs will change, other costs will remain the same
Conversion cost
sum of direct labor cost and manufacturing overhead cost
Which of the following is always an irrelevant cost
sunk cost
In the equation Y= a + bX, X represents
the level of activity
All of the following are necessary to obtain ISO 9000 certification except ____
the quality of output is the best in the industry ** what is necessary is... - a quality control system is in use -the system is backed up with detailed documentation of quality control procedures -the intended level of quality is achieved on a sustained, consistent basis
In the equation Y=bX, Y is the
total mixed cost
true or false: presenting fixed costs on an average per unit basis makes them look like they are variable costs
true
A cost that changes in direct proportion to changes in the activity level is a ___ cost
variable
mixed costs are also commonly known as semi-______ costs
variable