Managerial Accounting Chapter 1

Product costs

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

Total Variable Manufacturing Cost formula

Direct materials + Direct labor + variable manufacturing overhead

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

Factory insurance administrative salaries factory rent

T/F: All of a company's depreciation, property taxes and insurance premiums are considered manufacturing overhead

False

T/F: Variable costs remain fixed in total within the relevant range of activity

False

True or False: Labor costs that can be specifically traced to a product are indirect labor costs

False

Prior to being recorded on the income statement, manufacturers' product costs flow through

Finished goods, Raw materials, Work in process

Prime Cost Formula

Prime Cost = Direct Materials + Direct Labor

Total Conversion Costs Formula

Total Conversion Cost = direct labor + manufacturing overhead

Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier

True

T/F: A cost may be indirect or indirect, depending on the cost object

True

T/F: A regional sales manager's salary would be a direct cost of the regional office in which the sales manager works

True

T/F: Period costs are expensed in the same period in which they are incurred

True

T/F: Period costs do not flow through the inventory accounts

True

T/F: Sales commissions are period costs

True

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

True

Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior

True

Discretionary fixed costs include

advertising and management training programs

Indirect labor costs include

assembly-line supervisor salary and factory security guard wages

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

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

differential

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

differential

The difference in revenues between two alternatives is called

differential revenue

Costs that can be easily and conveniently traced to a specific product are called ___________ costs.

direct

Prime costs are

direct materials and direct labor

as the level of activity moves outside of the relevant range, fixed costs

increase or decrease in discrete steps

A manufacturing cost that cannot be easily traced to a specific cost object is a(n) ____ cost

indirect

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 dress manufacturer would consider the cost of relatively inexpensive items like thread to be part of:

manufacturing overhead indirect materials

The cost of producing one more unit is the _ cost

marginal

The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is known as the _ principle

matching

The components of prime costs are direct _ costs and direct _ costs

materials, labor

step-variable costs

may include total salaried employee expense and can be adjusted quickly as conditions change

An activity base

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

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

mixed

Cost behavior

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

Cost assumptions are reasonably valid within ___________ ______________ of activity.

relevant range

In the equation Y = a + bX, Y is the

total mixed cost

Direct Labor is also called

touch labor

T/F: The finished product of one company can become raw materials for another company

true

T/F: presenting fixed costs on an average per unit basis makes them look like they are variable costs

true

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

True

How do you calculate total period cost?

Variable Selling Expense + Fixed Selling Expense + Variable Administrative Expense + Fixed Administrative Expense

Cost objects include

anything for which cost data is desired, organizational subunits, customers

_ fixed costs can not be easily changed or eliminated

committed

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

cost structure

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

direct

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

direct

Manufacturing costs include

direct labor direct materials manufacturing overhead

Variable costs

remain constant per unit and vary in total

Nonmanufacturing costs include

sales commissions and company president's salary

Selling costs include

sales commissions, advertising, and sales salaries

Contribution margin is

sales revenue minus variable costs

A contribution approach income statement

separates costs into their fixed and variable components can assist with management decision making

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

Differential cost is:

the difference in cost between two alternatives and also known as incremental cost

Units that are partially complete are found in

work in process

total product cost formula

direct materials + direct labor + manufacturing overhead

Fixed costs that can be cut-back or eliminated without significant damage to a company's long-term goals are _ fixed cost

discretionary

T/F: Removing expenses that do not differ between alternatives could alter a decision

false

within the relevant range, fixed costs

generally include rent and supervisor salaries, should not be expressed on a per unit basis when making decisions, and remain constant in total regardless of changes in activity

Cost of goods sold for a merchandising company, direct materials and commissions are all examples of _ costs

variable

Within the relevant range of activity, variable costs:

vary in total remain constant per unit

Marginal revenue is revenue from selling one additional unit of product. It is basically the same as differential revenue when applied to one unit of output

Yessir

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

common

direct labor and overhead costs incurred to change raw materials into finished products are known as _ costs

conversion

Any item for which cost data is desired is called a

cost object

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

direct material cost

Other names for manufacturing overhead include

factory overhead indirect manufacturing costs factory burden

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

fixed

The contribution approach to constructing income statements distinguishes between _ costs

fixed and variable

Which of the following is not a cost classification associated with decision making?

indirect costs

Minor items such as nails and glue are usually considered to be:

indirect materials

calculate net income using traditional format

net income = gross margin - total selling & admin exp

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

opportunity cost

Within the relevant range, fixed costs

remain constant in total regardless of changes in activity, should not be expressed on a per unit basis when making decisions, and generally include rent and supervisor salaries

cost of good sold

beginning inventory + purchases - ending inventory = cogs

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

behavior

Common activity bases include

machine hours, units sold, direct labor hours

There are two broad classifications of costs

manufacturing costs and nonmanufacturing costs

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

committed

The materials that go into the final product are called _ materials

raw