LS CH2 - Managerial Accounting and Cost Concepts

Which of the following are most likely fixed costs?

-factory rent -factory insurance -administrative salaries

Variable costs vary within the relevant range of activity.

in total

Based on the following information, compute the cost of goods sold for Spengler Merchandising Corp.: Sales: $400,000 Purchases: $300,000 Beg. Invent: $50,000 End Invent: $90,000 Sell Exp: $70,000 Admin. Exp: $30,000 Accounts Rcv: $110,000

$260,000

Sales revenue minus variable expenses equals ____ _____.

Contribution margin

Fixed costs that cannot easily be changed and often lock a company into a multi-year decision are ____ fixed costs

committed

Differential costs are also known as _____ costs.

incremental

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called:

least-squares regression

A(n) ____ approach income statement divides costs into cost of goods sold and selling and administrative expenses, while a(n) _____ approach income statement makes a distinction between fixed and variable costs.

Traditional Contribution

True/False: Presenting fixed costs on an average per unit basis can be misleading.

True

Administrative costs include:

executive compensation and public relations costs

Period costs are expensed on the income statement:

in the period in which they occurred

The components of prime costs are (select all that apply): - manufacturing overhead - a direct labor - selling and administrative expenses - a direct materials

- a direct labor - a direct materials

True/False: Raw material costs include only direct materials.

False

Cost behavior is considered linear whenever:

a straight line approximates the relationship between cost and activity

A change in revenues between two alternatives is known as ____ revenue or incremental revenue.

differential

In a least-squares regression line, the vertical intercept (a) of the line represents the total ____ cost.

fixed

Based on the following information, calcuate net income for Dana's Dress Shop using the traditional format. Sales: $360,000 Gross Margin: $140,000 Contribution Margin: $110,000 Total Sell/Admin Exp: $60,000 - $160,000 - $190,000 - $80,000 - $50,000

$80,000

Which of the following are examples of indirect labor costs?

- Assembly-line supervisor salary - Factory security guard wages

Manufacturing costs include:(check all that apply) - Administrative costs - Direct labor - Indirect labor - Selling costs - Direct materials

- Direct labor - Indirect labor - Direct materials

Which of the following statements are true? - Direct labor and indirect labor are product costs. - Advertising and sales commissions are period costs. - Sales commissions and shipping costs are product costs. - Factory cleaning and maintenance are period costs.

- Direct labor and indirect labor are product costs. - Advertising and sales commissions are period costs.

Which of the following is based on the rise-over-run formula for the slope of a straight line? - The high-low method - A scattergraph - Least-squares regression

- The high-low method

Which of the following are considered nonmanufacturing costs (check all that apply)? - Assembly-line worker wages - a Company president's salary - a Sales commissions - Insurance on plant equipment

- a Company president's salary - a Sales commissions

Which of the following is not a COST CLASSIFICATION associated with decision making? - Sunk costs - Opportunity costs - a Indirect costs - Differential costs

- a Indirect costs

The engineering cost approach: (check all that apply) - Classifies accounts as variable or fixed based on prior knowledge of how the cost behaves - Cannot be used when no past experience is available concerning activities and costs - includes an analysis of what cost behavior should be - is based on an engineer's evaluation of the production methods

- includes an analysis of what cost behavior should be - is based on an engineer's evaluation of the production methods

The high-low method (check all that apply): - is based on periods where the activity tends to be unusual - uses only two data points - generally provides an accurate estimate of true cost behavior during normal periods - is difficult to apply and requires a statistical software package

- is based on periods where the activity tends to be unusual - uses only two data points

A dress manufacturer would consider the cost of relatively insignificant items like thread to be part of. (check all that apply) - Manufacturing overhead - Direct materials - Administrative costs - Indirect materials

-indirect materials -manufacturing overhead

Costs that are shared by multiple cost objects in a company are known as ____ costs.

Common

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

Cost object

In an automobile manufacturing plant, the assembly-line workers are considered to be ___ ____.

Direct labor

Period costs are expensed on the income statement:

In the period in which they are incurred

Direct materials, direct labor, and manufacturing overhead are all ____ costs.

Product

Inventoriable costs is another term for ____ costs.

Product

Variable costs:

Remain constant per unit and vary in total

Direct labor and overhead costs incurred to change raw materials into finished products are known as ____ costs.

conversion

Materials that become an important component of the finished product and their cost can be easily and conveniently traced to the finished product are ___ materials.

direct

The revenue obtained from selling one additional unit of product is called ____ revenue.

marginal

The cost of producing one more unit is the:

marginal cost

There are two broad classifications of costs: manufacturing costs and _____ costs.

nonmanufacturing

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

opportunity cost

Which of the following is not a method used to estimate the fixed and variable portions of mixed costs? - Engineering approach - Relevant range analysis - Scattergraph - High-low method

relevant range analysis

Fixed variable costs should only be computed if a(n) ____ shows the relationship to be approximately linear.

scattergraph

Costs incurred to obtain customers' orders are known as ____ costs.

selling

When using account analysis, an account is classified as either fixed or variable based on:

the analyst's prior knowledge of how the cost behaves

When using the high low method, the change in cost divided by the change in units equals:

the variable cost per unit

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

variable

Within the relevant range, ____ costs remain constant on a per unit basis.

variable

Within the relevant range, costs remain constant on a per unit basis.

variable

Which of the following statements are true? - The fixed portion of a mixed cost represents the cost incurred for the actual consumption of a service. - A mixed cost has a minimum cost of having a service available and ready for use. - The equation for a straight-line makes it easy to calculate the total mixed cost for any activity level outside the relevant range. - When mixed costs are represented by a straight-line, the steeper the slope, the higher the variable cost per unit.

- A mixed cost has a minimum cost of having a service available and ready for use. - When mixed costs are represented by a straight-line, the steeper the slope, the higher the variable cost per unit.

Which of the following statements are true? - A direct cost is sometimes referred to as a common cost. - A regional sales manager's salary would be a direct cost of the regional office in which the sales manager works. - A direct cost can be easily conveniently traced to a specific cost object. - A particular cost is either direct or indirect, regardless of the cost object.

- A regional sales manager's salary would be a direct cost of the regional office in which the sales manager works. - A direct cost can be easily and conveniently traced to a specific cost object.

Cost objects include: - Organizational subunits - Anything for which revenue data is desired - Customers - Anything for which cost data is desired.

- Organizational subunits - Customers - Anything for which cost data is desired.

Which of the following statements are true? - The wages of assembly-line workers are period costs. - Period costs are expensed in the same period in which they are incurred. - Nonmanufacturing costs are period costs. - Period costs are also called inventoriable costs.

- Period costs are expensed in the same period in which they are incurred. - Nonmanufacturing costs are period costs.

Which of the following statements are true? - The relevant range of activity is approximated by a straight line. - Within the relevant range of activity total variable costs do not change. - Within the relevant range of activity, fixed costs remain constant in total.

- The relevant range of activity is approximated by a straight line. - Within the relevant range of activity, fixed costs remain constant in total.

Using the high-low method, the fixed cost is calculated: (check all that apply) - Using either the high or low level of activity - By adding the total cost to the variable cost - After the variable cost is calculated - Before the variable cost is calculated

- Using either the high or low level of activity - After the variable cost is calculated

R^2: (check all that apply) - indicates the percentage of the variation in the independent variable (activity) that is explained by the dependent variable (cost). - is usually provided by least-squares regression software - can be anything between 1 and 2 - measures goodness of fit

- is usually provided by least-squares regression software - measures goodness of fit

An activity base (check all that apply): - is a measure of whatever causes fixed costs to occur - a measures whatever causes costs to vary - is part of the organization where major operations are planned and carried out - a is sometimes called a cost driver

- measures whatever causes costs to vary - is sometimes called a cost driver

When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity:

-choose there periods with the highest and lowest level of activity and their associated costs.

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

Cost Structure

The difference in costs between two alternatives is called a(n) _____ cost.

Differential

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

Sunk

True/False: A particular cost may be direct or indirect depending on the cost object.

TRUE

A non-profit organization is trying to determine the fixed and variable costs of providing meals. During the first six months of the year, the following meals were served and the following costs were incurred. Month Meals Costs Jan 1,500 $5,200 Feb 1,700 $5,700 Mar 1,200 $4,100 Apr 1,100 $4,200 May 1,150 $4,250 Jun 1,650 $5,550 The cost equation using the high-low method is:

y= $1,450 + $2.50x

A contribution format income statement: (check all that apply) - Can assist with management decision making - Is prepared primarily for external reporting purposes - Reports both gross margin and net income - Separates costs into their fixed and variable components

- Can assist with management decision making - Separates costs into their fixed and variable components

Cost objects: (check all that apply) - May only be assigned direct costs - Can be products, customers, or jobs - May be assigned costs to help control spending

- Can be products, customers, or jobs - May be assigned costs to help control spending

Which statement regarding a traditional format income statement is FALSE? - It does not distinguish between fixed and variable costs - It focuses on product and period costs - It is primarily used for internal reporting purposes.

- It is primarily used for internal reporting purposes.

Which of the following includes factory costs such as cleaning supplies, taxes, insurance and janitor wages? - Manufacturing overhead - Indirect labor - Direct materials - Period costs

- Manufacturing overhead

____ fixed costs can be cut-back or eliminated without significant damage to a company's long-term goals. ____ fixed costs are not easily changed or eliminated.

1. Discretionary 2. Committed

Manufacturing costs can be divided into three categories: direct materials, direct ____ and ____ ____.

1. labor 2. manufacturing overhead

A fixed cost remains fixed ____ within the relevant range of activity.

in total

We Ship It, Inc. is considering changing its shipping methods, which they believe will attract new customers. The following information relates to the present and proposed methods. Present Proposed Revenues $140,000 $190,000 Var. Costs $60,000 $70,000 Fixed Cost $20,000 $25,000 Calculate the differential net income or loss from the proposal.

$35,000 differential net income

Which of the following are differences between the traditional and contribution approach to income statements (check all that apply)? - The traditional income statement is for internal use, while the contribution approach income statement is for external use - Compared to traditional statements, contribution approach statements provide management with a tool to make decision making easier. - Contribution approach statements focus on fixed and variable costs Traditional statements focus on product and period costs.

- Compared to traditional statements, contribution approach statements provide management with a tool to make decision making easier. - Contribution approach statements focus on fixed and variable costs Traditional statements focus on product and period costs.

Which of the following are differences between the traditional and contribution approach to income statements (check all that apply)? - Traditional income statements focus on cost function. Contribution approach statements focus on cost behavior. - Compared to traditional statements, contribution approach statements provide management with a tool to make decision making easier. - The traditional income statement is for internal use, while the contribution approach income statement is for external use. - Contribution approach statements focus on fixed and variable costs. Traditional statements focus on product and period costs.

- Contribution approach statements focus on fixed and variable costs. Traditional statements focus on product and period costs. - Compared to traditional statements, contribution approach statements provide management with a tool to make decision making easier. - Traditional income statements focus on cost function. Contribution approach statements focus

Mixed costs are also commonly known as semi- __ costs.

variable

When using the high-low method, the slope of the line equals the ____ cost per unit of activity.

Variable