SB 2.0 Chapter 1

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

A company purchased a 12 month insurance policy on October 1 for $1,200. On the December 31 annual financial statements, ______.

$300 is reported as a expense and $900 is reported as an asset

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. The differential net income from the proposal is ______.

$35,000

Given: Sales of $360,000, Gross Margin of $140,000, Contribution Margin of $110,000, and Total Selling & Administrative Exp. of $60,000, net income using the traditional income statement format equals ______.

$80,000

Which of the following statements are true?

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

On a traditional income statement, cost of goods sold reports the ______ costs attached to merchandise sold during the period, while selling and administrative expenses report all ______ costs that have been expensed as incurred.

Blank 1: product or manufacturing Blank 2: period

An income statement focusing on product and period costs has been prepared using a(n) ______ format, while a(n) ______ format income statement makes a distinction between fixed and variable costs.

Blank 1: traditional or GAAP Blank 2: contribution or contribution margin

Cost behavior ______.

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

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

Common

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

Common

Which of the following are differences between the traditional and contribution format to income statements?

Contribution format statements make it easier to predict how decisions affect the future. Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior.

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

Direct

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

Direct

Labor costs that can be easily and conveniently traced to specific products are ______ costs.

Direct Labor

Fixed costs that usually arise from annual spending decisions by management are called ______ or managed fixed costs.

Discretionary

Which of the following are most likely fixed costs?

Factory rent Administrative salaries Factory insurance

All of a company's depreciation, property taxes, and insurance premiums are considered manufacturing overhead.

False

True or false: Variable costs remain fixed in total within the relevant range of activity.

False

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

Finished Goods Raw Materials Work in Process

Which of the following is not a COST CLASSIFICATION associated with decision making?

Indirect costs

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

Indirect, common, overhead, or shared

Direct materials and direct labor are both ______ costs.

Manufacturing

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

Matching

Which of the following statements are true?

Period costs do not flow through the inventory accounts. Period costs are expensed when incurred.

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 Generally include rent and supervisor salaries

What type of cost is never relevant and should be disregarded when making decisions?

Sunk

A cost may be direct or indirect, depending on the cost object.

True

Presenting fixed costs on an average per unit basis makes them look like they are variable costs.

True

The finished product of one company can become raw materials for another company.

True

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

Variable

Units that are partially complete are found in ______.

Work in Process

Period costs ______.

are expensed in the period incurred include all costs that are not product costs

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

cost object

Beginning merchandise inventory + Purchases - Ending merchandise inventory =

cost of goods sold

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

cost structure

Cost objects include ______.

customers organizational subunits anything for which cost data is desired

Differential costs, opportunity costs and sunk costs are all cost classifications used in ______.

decision making

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

direct material

A cost that can be easily and conveniently traced to a specific cost object is a(n) ______ 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, common, or overhead

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 or raw

In an automobile manufacturing plant, the assembly-line workers are classified as ______ ______ cost

direct or touch labor or labour

Fixed costs that can be cut-back or eliminated without significant damage to a company's long-term goals are ______ fixed cost and ______ fixed costs are the costs that cannot be easily changed or eliminated.

discretionary or managed committed

The contribution approach to constructing income statements ______.

distinguishes between fixed and variable costs aids in decision making

As the level of activity moves outside of the relevant range, ______ costs increase or decrease in discrete steps rather than a linear fashion.

fixed

In the equation Y = a + bX, a = total ______ cost.

fixed

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

fixed

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

in total

Variable costs vary ______ within the relevant range of activity.

in total

Manufacturing overhead costs include ______.

indirect materials, factory supervisors' salaries, and factory depreciation

Product costs are also called ______ costs.

inventoriable or manufacturing

An activity base ______.

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

Common activity bases include ______.

machine hours direct labor hours units sold

Discretionary fixed costs include ______.

management training programs advertising

Factory burden is a synonym for ______ ______

manufacturing overhead

Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as ______.

manufacturing overhead

Step-variable costs ______.

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

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

mixed

Inventoriable costs is another term for ______ costs.

product or manufacturing

Variable costs ______.

remain constant per unit vary in total

Opportunity costs ______.

should be considered in decision making are benefits lost when choosing one option over another

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 or sunken

Cost structure ______.

the relative proportion of each type of cost in an organization

Period costs are always expensed on the income statement in the period in which ______.

they are incurred

Committed fixed costs include ______.

top management salaries real estate taxes

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

variable

Within the relevant range, a cost that changes in direct proportion to changes in the activity level is a ______ cost.

variable

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

behavior or behaviour

A contribution approach income statement ______.

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

Differential costs ______.

can be fixed or variable

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

committed

Sales revenue minus variable expenses equals

contribution margin

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

conversion

Prime costs include ______.

direct materials direct labor

Manufacturing costs include ______.

direct materials direct labor manufacturing overhead

Administrative costs include ______.

executive compensation and public relations costs

Other names for manufacturing overhead include ______.

factory burden indirect manufacturing costs factory overhead

As the level of activity moves outside of the relevant range, fixed costs, ______.

increase or decrease in discrete steps

The difference in revenues between two alternatives is called ______.

incremental revenue

Differential costs are also known as

incremental, relevant, or decremental

Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs.

indirect

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

indirect materials

Indirect materials and indirect labor are classified as ______.

manufacturing overhead

The cost of producing one more unit is the ______ cost.

marginal

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

marginal

A cost that contains both variable and fixed costs elements is called a(n) ______ cost.

mixed, semivariable , semi variable, or semi-variable

Indirect materials include ______.

nails, glue, and thread

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

opportunity cost

The sum of direct materials and direct labor is called ______ cost.

prime

The assumption that cost behavior is strictly linear is reasonably valid within the ______ ______ of activity.

relevant range

Nonmanufacturing costs include ______.

sales commissions company president's salary

Contribution margin is ______.

sales revenue minus variable costs

Cost behavior patterns such as salaried employees are often called ______-______ costs.

step variable

Within the relevant range of activity ______.

the assumption that cost behavior is strictly linear is reasonably valid fixed costs remain constant in total and vary per unit

Direct labor is also called ______ labor.

touch

Because the variable cost per unit equals the slope of the straight line, the steeper the slope, the ______ the variable cost per unit.

Higher

Indirect labor costs include ______.

factory security guard wages assembly-line supervisor salary

The materials that go into the final product are called ______ materials.

raw or direct