Chapter 1. M/Acct

incremental cost

an increase in cost between two alternatives

production costs

costs associated with the actual production of goods or services like the salary of the workers at the plant

Period Costs

costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued includes all selling (like ads) and admin

fixed costs

costs that remain constant as output changes

differential cost

A future cost that differs between any two alternatives.

Which of the following is an example of a period cost in a company that makes clothing? A. Monthly depreciation on production equipment B. Advertising cost for a new line of clothing C. Factory Supervisor's Salary D. Fabric Used to produce men's pants.

Advertising cost for a new line of clothing

All of the following are examples of product costs except: salary of the plant manager. depreciation on the company's retail outlets. rental costs of factory equipment. insurance on the factory equipment.

All are Product Costs (hint: Factory) except B. Depreciation is not a product cost

Direct Costs

Costs that can be specifically identified with a particular project or activity.

During the month of May, direct labor cost totaled $15,785 and direct labor cost was 55% of prime cost. If total manufacturing costs during May were $78,100, the manufacturing overhead was:

DIVIDE... Prime cost 15,785/.55= $28,700 Total Manufacturing Cost= Prime Cost + MOH 78,100= 28,700+ MOH 49,400= MOH

management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $512,000 or a new model 220 machine costing $408,000 to replace a machine that was purchased 12 years ago for $455,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L. Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $408,000 in the new machine, the money could be invested in a project that would return a total of $57,000. In making the decision to buy the model 220 machine rather than the model 370 machine, the differential cost was: $104,000 $30,000 $47,000 $57,000

Differential Cost = (370 model) $512,000 - $408,000 (220 model) = $108,000

Prime Cost

Direct Materials + Direct Labor

Which of the following statements is true when referring to fixed costs? A. Fixed costs increase in total throughout the relevant range. B. Discretionary fixed costs can often be reduced to zero for short periods of time without seriously impairing the long-run goals of the company. C. As volume increases, unit fixed cost and total fixed cost will change. D. Committed fixed costs arise from the annual decisions by management.

Discretionary fixed costs can often be reduced to zero for short periods of time without seriously impairing the long-run goals of the company.

Manufacturing Company leases a vehicle to deliver its finished products to customers. Which of the following terms correctly describes the monthly lease payments made on the delivery vehicle? Direct cost? Fixed cost? or Both?

Fixed Cost, not direct

As the level of activity increases, how will a mixed cost in total and per unit behave?

In total: Increase Per Unit: Decrease

Conversion Costs

MOH + DL

The costs of direct materials are classified as: Manufacturing Cost? Conversion Costs? Prime Cost?

Manufacturing cost: YES, direct materials apply Conversion Costs: NO (MOH + DL) Prime Cost: YES (DM+DL)

Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $496,000 or a new model 220 machine costing $481,000 to replace a machine that was purchased 6 years ago for $486,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L. Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $481,000 in the new machine, the money could be invested in a project that would return a total of $483,000. In making the decision to buy the model 220 machine rather than the model 370 machine, the sunk cost was:

Sunk Cost = Cost of the OLD MACHINE= $486,000

Which of the following would most likely NOT be included as manufacturing overhead in a furniture factory? The cost of the glue in a chair. The workman's compensation insurance of the supervisor who oversees production. The factory utilities of the department in which production takes place. The amount paid to the individual who stains a chair.

The Amount Paid to the Stainer That would be direct labor instead of manufacturing overhead

Within the relevant range, variable costs can be expected to: A. vary in total in direct proportion to changes in the activity level. B. increase on a per unit basis as the activity level increases. C. increase on a per unit basis as the activity level decreases. D. remain constant in total as the activity level changes.

Variable costs, In the relevant range, are directly proportional A.

Product Cost

direct materials + direct labor + manufacturing overhead hint: factory

opportunity cost If that were done, instead of investing $411,000 in the new machine, the money could be invested in a project that would return a total of $439,000.

the most desirable alternative given up as the result of a decision Return on investment would be the opp. cost = 439,000